[ET Net News Agency, 4 November 2019] Citi Research cut its target price for Colour
Life Services Group (01778) to HK$4.82 from HK$5.6 and downgraded its rating to "neutral"
from "buy".
The research house said Colour Life has switched its growth strategy from GFA & profit
scale to online GMW & customer base, eyeing to cover 100mn household users in its
ecosystem by 2020 (June 2019: 32mn) through cooperation with online giants such as JD.com
(third-largest shareholder, 5.08%), 58.com etc., and leverage on platform expansion.
Despite an aggressive GFA target of 2.5bn sqm by 2020 (double from Jun-19: 1.2bn), the
majority of the increment will be in cooperation areas that only boost coverage through
minority holding (<5%) with little profit contribution.
Net debt likely to persist on R&D for the new retail platform (estimated
Rmb50-100m/year). Colour Life's complete change in business direction towards new retail
may shape a long-term edge if successful, but inevitably clouds near-term earnings
visibility (estiamted 7% CAGR to 2021) and ROE (2021: 14.1%). (KL)