Kasen International Holdings Limited (SEHK:496), a HKDHK$2.01B small-cap, operates in the retail industry impacted by the digital transformation for all retail channels. Growth has been a result of investment in streamlining distribution and improving website platforms to accommodate the shift in spending. Retail analysts are forecasting for the entire industry, a strong double-digit growth of 16.94% in the upcoming year , and a robust short-term growth of 22.13% over the next couple of years. However, this rate came in below the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Kasen International Holdings is a laggard or leader relative to its retail peers. View our latest analysis for Kasen International Holdings
What’s the catalyst for Kasen International Holdings’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the previous year, the industry saw growth in the teens, beating the Hong Kong market growth of 11.30%. Kasen International Holdings lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its retail peers. As the company trails the rest of the industry in terms of growth, Kasen International Holdings may also be a cheaper stock relative to its peers.
Is Kasen International Holdings and the sector relatively cheap?
The retail industry is trading at a PE ratio of 18x, relatively similar to the rest of the Hong Kong stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.73% compared to the market’s 10.00%, potentially illustrative of past tailwinds. Since Kasen International Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Kasen International Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Kasen International Holdings has been a retail industry laggard in the past year. If your initial investment thesis is around the growth prospects of Kasen International Holdings, there are other retail companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Kasen International Holdings fits into your wider portfolio and the opportunity cost of holding onto the stock.