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  • QKLS: QKL Stores Inc Is Undervalued And Will Bounce Back  0 comments
    Mar 27, 2013 10:36 AM | about stocks: QKLS

    Introduction of QKLS

    (QKLS) is the biggest Chinese private supermarket chain of Northeast of China.

    It has 49 supermarkets, 5 department stores and over 6000 employees. In addition, QKLS owns two logistics distribution centers in Harbin and Shenyang. QKLS joined the Independent Grocers Alliance in 2005.

    Assets and Liabilities

    According to the third-quarter report, by the end of September of 2012, the total assets of QKLS were $168,847,167, of which $99,112,161 were current assets..

    Sources:U.S. Securities and Exchange Commission

    Assets and Fluctuation of Exchange Rates

    The Assets in QKLS (cash, deposit, etc.) are all in CNY, tantamount to QKLS occupies the long position in CNY exchange rate. The continuous appreciation of CNY may increase the assets of QKLS.

    Exchange Rate of USD to CNY

    Date

    Exchange Rate

    03-13-08

    7.097

    04-10-08

    6.992

    06-17-08

    6.8919

    06-22-10

    6.798

    09-21-10

    6.6997

    01-13-11

    6.5997

    04-29-11

    6.499

    08-11-11

    6.3991

    02-10-12

    6.2937

    Sources: China Foreign Exchange Trade System

    Higher Inventory Turnover

    According to the information from the company, inventory turnover ratio of QKLS was 6.2 in 2012, which is better than other companies in China.

    Inventory Turnover Rate

    Stock code

    Nine Months Ended September 30,2012

    002336

    Ren Ren Le

    4.89

    000759

    Zhongbai Holdings Group Co.,Ltd

    5.26

    601116

    Sanjiang Shopping Club Co., Ltd.

    5.22

    600361

    Beijing Hualian Hypermarket Co.,Ltd.

    5

    601933

    Yonghui Superstores Co., Ltd.

    5.98

    002024

    Suning Electrical Group Co., Ltd.

    3.95

    Ave

     

    5.055

    Sources:The Shenzhen Stock Exchange , The Shanghai Stock Exchange

    Prospective Analysis of QKLS

    From 2009 to 2011, QKLS has kept positive income growth for three years with 14.4% cumulative growth in net sales, which is above the average.

    The development of QKLS benefits from both the development of retailing industry in China and the advantage in financing, which helps QKLS to gain more market shares in northeastern China. From 2009 to 2011, QKLS has totally set up 28 supermarkets, 3 department stores, and doubled the amount of employees.

    QKL Supermarket In Shuangcheng City Heilongjiang Province

    (click to enlarge)

    QKL Supermarket In Daqing Heilongjiang

    (click to enlarge)

    QKL Supermarket In HuLunbeier Inner Mongolia Autonomous Region

    (click to enlarge)

    QKL stores Inc. In Daqing Heilongjiang

    (click to enlarge)

    Sources: http://www.qkl.cn/

    Moreover, compared with other companies in China, QKLS focuses on developing in the medium-sized cities in northeast China to avoid the fierce competition in big cities and help QKLS realize its big leap.

    The huge potential of retailing market in northeast China makes us optimistic for the future of QKLS.

    Population and GDP

     

    Population

    Growth Rate of GDP

     

    2011

    Heilongjiang Province

    38,312,224

    12.2%

    Jilin Province

    27,462,297

    13.7%

    Liaoning Province

    43,746,323

    12.1%

    The Inner Mongolia Autonomous Region,

    24,706,321

    14.3%

    Total

    134,227,165

     

    Sources:China National Bureau of Statistics

    By the end of 2011, GDP of the Northeast China was $ 942.5 billion and the GDP growth rate is greater than 12%. Total sale nets of chain supermarkets in these provinces are approximately $ 47 billion.

    There are 134 million residents in Northeast China, which is larger than the total population of Great Britain and Italy. Chinese government launched the policy called "revitalize northeast". It is expected that in ten years the GDP growth rate of Northeast China will keep above 8%. In the year of 2020, the GDP will be approximately $2,000 billion in China. The sustainable expansion of retailing market provides QKLS with a stable base for further development.

    We predict that QKLS would slow down its speed on setting up stores in the next one to three years. The annual amount of stores increased would be kept at 3 to 5, and the growth rate of operation revenue will be around 7%.

    Due to the increasingly fierce market competition, we are expecting the net margin of QKLS would be around two million dollars in fourth season 2012. The annual operation revenue in 2012 could be about three hundred and ninety million dollars, a year-on-year growth of 5.4% and the rising trend remains。

    Less than $10 Million, QKLS was undervalued

    The stock value of QKLS is near $ 8 million. According to the third-quarter report,QKLS possessed $ 95 million net asset, of which $ 26 million were cash.

    For further research, we contrasted QKLS with listed retailing companies in china.

    P/B Ratio of A-shares

    Stock Code

     

    Book Value

    Stock Value

    P/B ratio

    002336

    RenRenLe

    32.8814

    36.04

    1.096

    000759

    Zhongbai Holdings Group Co.,Ltd

    28.2276

    44.81

    1.587

    601116

    Sanjiang Shopping Club Co., Ltd.

    14.6031

    38.61

    2.644

    600361

    Beijing Hualian Hypermarket Co.,Ltd.

    30.2816

    33.82

    1.117

    601933

    Yonghui Superstores Co., Ltd.

    42.5055

    193.59

    4.554

    002024

    Suning Electrical Group Co., Ltd.

    282.6252

    490.97

    1.737

    600694

    Dashang Co.,Ltd.

    42.8607

    103.6

    2.417

    Unit:one hundred million CNY

    P/B Ratio of H-shares

    Stock Code

     

    Book Value

    Stock Value

    P/B ratio

    06808

    Sun Art Retail Group Ltd.

    161.91

    1135.26

    7.01

    00814

    Beijing Jingkelong Company Limited

    19.73

    22.24

    1.13

    Unit:one hundred million CNY

    P/B Ratio of QKLS

    Stock Code

     

    Book Value

    Stock Value

    P/B ratio

    QKLS

    QKL stores Inc.

    5.93

    0.43

    0.073

    Unit:one hundred million CNY

    Sources:The Shenzhen Stock Exchange,The Shanghai Stock Exchange ,U.S. Securities and Exchange Commission

    ,Hong Kong Exchanges and Clearing Limited

    Note

    A-shares are ordinary shares issued by Chinese companies,which can be traded in securities market of China.

    H-shares are ordinary shares issued by companies,which can be traded in HK.

    Note-2

    The data comes from the semi-annual report of companies in 2012.The stock value of the company was calculated against closing price in December 31, 2012.

    The Value of "QKLS" in Retail Industry

    Besides the above, we think that the low price of QKLS will not last too long. QKLS has huge market shares on many medium-sized cities in northeast China and will be acquired by other companies in China.

    We think that the famous retailers have the will to purchase local companies in some medium-sized cities in order to gain more market shares. Located in Daqing and owning huge market shares in Northeast China, QKLS will be seen as a strong player by others in capital market in the future.

    Who will invest in QKLS in the future? Take regions into consideration. It can be the Dashang Co., Ltd. who runs a long-term business in the northeast retailing market or the Beijing Jingkelong Company who want to enter the market of northeast China. Besides,China Resources Co., Ltd. who has purchased Jiangxi Hongkelong Department & Investment Co., Ltd. or HNA Retailing Holdings Co., Ltd. who acquired Shanxi Sankeshu Superstores Trade Co., Ltd., also pay close attention to QKLS.

    Conclusion

    We believe that QKLS is "substantially undervalued", and its real value will be gradually recognized by the investors. We consider its price will bounce back In the next six months.That is why we recommend to buy in. We are fully confident that this act will bring in profits to the investors.

    Disclosure: I am long QKLS.

    Additional disclosure: This is a translation of Chinese report about QKLS .Some grammar errors can't be completely avoided now,but the article will provide efficient informations that investors focusing on QKLS need or want. By the way,it is also a big chance for the investors investing in the american depositary shares of Chinese companies.If not,it will be a great loss.

    Stocks: QKLS
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