Lifestyle (1212, $13.68) 6M Target $15.25 BUY

Zhihui Jiang – zhihui.jiang@guoco.com (86 755) 8209 2443

Event: Lifestyle's 2009 earnings grew 23% yoy, surprising the market on the upside.

• Revenue increased 7 % yoy to $3.8bn. Earnings grew 23% yoy to $1.1bn. Stripping off revaluation gain/loss on assets and some one-off items, core net profit lifted 16% yoy to $992mn. The company declared final dividend of $0.17 , implying $0.28 for full year.
• The company further increased its market share in terms of gross sales revenue in Hong Kong department store sector from 21.4% in 2008 to 21.9% in 2009 as its two stores gr ew faster than peers. SOGO CWB and SOGO TST recorded yoy sales growth of 2.9% and 9.2% respectively.
• Sales of Shanghai Jiuguang store rose 11% yoy in RMB. Five years since its inception, Shanghai Jiuguang continued to grow steadily and ranked the third largest department store in Shanghai. The store gained its market share in Shanghai since sales of the 20 largest department stores in Shanghai only increased 7.9% yoy in 2009.
• The company opened the Dalian and Suzhou store in 2009 with GFA of 35,500 sqm and 168,000 sqm respectively. The Shenyang store, with an initial GFA of 132,000 sqm, is scheduled to open at the end of 2011. Once the Shenyang store is in operation, ma inland stores' total GFA will be over 8x of that of Hong Kong. We believe its m ainland business has huge growth potential in the coming years.
• Beiren Group's potential IPO could stimulate Lifestyle's stock price , in our view . The company ha s raised its stake in Beiren from 30% to 49% via a 60%-owned subsidiary. Operating seven department stores, 16 supermarkets and a number of outlets, Beiren plans for an IPO listing in China.
• Look ing forward, we expect sales to increase by about 20% in 2010, since Jan/Feb same - store sales growth improved to double digits for China/HK stores. The company's Shanghai and Suzhou stores will also benefit directly from the Shanghai Expo 2010.
• We forecast core EPS for 2010-2012 of $0.693, $0.792 and $0.863 respectively.
• The counter is trading at 19.7x 2010 PER, which is undemanding in our view.
• Reiterate BUY with target revised up to $15.25, based on 22x 2010 PER.