Belle’s slightly disappointing footwear SSSG (3%) in 4Q12was draggedby weaker-than-expected performance in Dec (partly due to a later CNYin 2013). However, its stronger-than-expected sportswear SSSG (10%)underpinned by low single-digit increase in realised ASP has indicated themarket share gains of international brands from domestic peers, ratherthan a pronounced recovery of China sportswear sector. Belle and GoldenEagle remain as our top BUYs in China consumer space.

Footwear SSS slightly below expectation

Belle’s footwear SSS grew at 3% in 4Q12, largely in line with that in 3Q12(2.8%) but 2% below our expectation. Nevertheless, Belle’s footwearbusiness has low operating leverage (due to its largely turnover-linked rentalstructure). This means that its SSS deceleration has less damage on its EBITmargins than other footwear plays with high component of fixed costs.According to the management, footwear ASP was largely flat and its SSS wasmainly underpinned by volume.

Upside surprise in sportswear business

Sportswear (mainly Nike/Adidas) SSS grew at 10% in 4Q12, 10% above ourexpectation. According to the management, sportswear realised ASPincreased by low single-digit while sportswear volume increased by highsingledigit. Obviously, the magnitude of international brands’ tag price liftwas more than the increased degree of retail discounting in 4Q12. Belle’sstronger-than-expected sportswear SSS indicates the market share gains ofNike/Adidas in China from domestic brands, most of which are expected torecord SSS decline in 4Q12.

Store expansion continued

It opened 572footwear POS in 4Q12to 12,090as of end-2012(up 18% YoY),dismissing some investors’ concerns that it has limited scope for futureexpansion again. Most of its new openings took place in China’s low-tiercities. The company opened 317sportswear POS in 4Q12to 5,474as of end-2012(up 17% YoY).

Our sector top pick

Our 2012-13earning forecasts remain largely unchanged, as the upsidesurprise in its sportswear business offsets some negative impact from itsslight disappointment in footwear operation in 4Q12. Our target price is basedon 21x targeted 2014P/E. Belle and Golden Eagle (3308.HK, BUY) are oursector top picks in 2013.

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