[ET Net News Agency, 20 September 2019] Sun Art Retail Group (06808) announced on 10
September details of the substantial lift in annual caps for its transaction with Alibaba,
implicitly disclosing higher scale of its collaboration with Tmall Supermarket.
Citi Research believes that this collaboration enables Sun Art to gain market share from
offline competitors (via expanding the service radius of its stores up to 20km by
fulfilling online FMCG orders of Tmall Supermarket) while saving supply-chain costs of
Tmall Supermarket, for a win-win situation.
Citi expects Sun Art's sales related to the Tmall Supermarket collaboration (started in
August 2019) to amount to Rmb5bn (or 40% of its proposed annual cap) in 2020, representing
5% of its current sales forecast.
Conservatively assuming 1-2% of net margin (i.e., similar to its B2B business), Citi
thinks this collaboration could boost 2020 profit by 2-3%. It expects investors to better
appreciate the positive impact of this collaboration after Alibaba's annual Investor Day
on 23-24 September.
Citi maintained its "buy" rating and HK$10.8 target price on Sun Art. (KL)