This article by Jennifer Tan (left, Director, Research & Products, Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 22 January 2016. The article is republished with permission.
Chen Kaitong’s retail career began more than three decades ago, with a makeshift stall located along a mountainous road in Anxi, China’s Fujian province. The founder of Singapore-listed, Chinese department store operator Zhongmin Baihui, who was born to farming parents, started selling socks, slippers and scarves to make ends meet when he was 16.
“Life in the village was very hard, growing mushrooms and fungi. We had no money to buy land, clothes, or build a house. So I decided to become a street vendor,” Chen recalled, speaking in Mandarin.
Between 1993 and 1996, his retail outlets expanded in size and their locations shifted to air-conditioned shopping malls.
Colour Amidst Variety
Zhongmin Baihui now owns eight department stores cum supermarkets and manages another four, mostly in Fujian province. The Group has a total gross floor area of more than 2 million square feet, equivalent to the size of 35 football fields. It derives revenue from direct sales, commission from concessionaire sales, as well as income from rentals and managed rentals.
Offering a colourful shopping experience with a wide variety of goods, including fresh produce from its supermarkets and lifestyle merchandise, the Group caters mainly to tastes of middle-income consumers.
There’re many people knocking on our doors, and we’re always looking at opportunities. That’s because we’re cash-rich and have a strong brand name, and there’s a lot of confidence in our geographic location.
- Chen Kaitong
Zhongmin Baihui Retail Group
Zhongmin Baihui listed on the Catalist board of the Singapore Exchange in January 2011, and transferred to the main board in September 2013.
With a market capitalisation of about S$345 million (US$240 million), the department store operator has averaged annual revenues of 391 million yuan (US$60 million) between 2009 and 2014.
It has been profitable in four of the six years, posting earnings of between 10 million and 32 million yuan during the period.
The stock is also a component of the FTSE ST China Index and the FTSE ST China Top Index.
Its peers in the sector include Shenzhen-listed New Huadu Supercenter, with a market capitalisation of about 3.72 billion yuan (US$565 million), and Shanghai-listed Yonghui Superstores, which has a market capitalisation of 34.3 billion yuan (US$5.2 billion).
Zhongmin Baihui will ride on Fujian’s accelerating economic growth and its dense population to expand over the medium term, Chen said.
The province, located on China’s southeastern coast, registered gross domestic product of US$392 million in 2014, and a population of close to 38 million. The Minnan Golden Triangle, which includes Xiamen, Quanzhou and Zhangzhou, accounts for about 40% of Fujian’s GDP.
Most of Zhongmin Baihui’s stores are located in the prefectures of Xiamen, Quanzhou and Zhangzhou, which registered per capita GDP of between US$8,000 and US$14,000 in 2014. This compares with China’s overall per capita GDP of around US$7,500 in the same year.
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“While consumption patterns in Fujian are similar to those in Beijing and Shanghai, purchasing power in Fujian is just beginning to take off,” Chen said.
As China’s economy continues to slow, Zhongmin Baihui will whittle down operating costs and tweak its business models to achieve greater efficiency.
Looking ahead, Chen plans to maintain the Group’s focus on Fujian and Nanjing, where its stores are located. “Fujian’s GDP growth is expected to double in the next five years, and its population will probably grow by 30%.”
Those demographics bode well for Zhongmin Baihui’s longer term outlook.
“There’re many people knocking on our doors, and we’re always looking at opportunities,” he said.
“That’s because we’re cash-rich and have a strong brand name, and there’s a lot of confidence in our geographic location.”
We need to understand where to find the best opportunities and how to handle these circumstances when they arise. This is basically a test of management’s foresight and judgment.
- Chen Kaitong
Zhongmin Baihui Retail Group
Zhongmin Baihui had cash and cash equivalents of 241.3 million yuan as at 30 September 2015.
It’s all about managing choices and risks, Chen added, pointing to the Chinese phrase for crisis – 危机(wei ji) – a combination of characters meaning danger and opportunity.
“We need to understand where to find the best opportunities and how to handle these circumstances when they arise. This is basically a test of management’s foresight and judgment.”
Away from work, Chen, who describes himself as a man of simple needs, finds solace in nature.
“I enjoy walking in parks, trekking through hills and streams,” he said with a smile.
Ethics are also important to him. Chen hopes to pass on the values of good judgment, honesty and uprightness to his two daughters and son, aged between 21 and 30 years old.
“In society, they must do good and no harm, regardless of the work they do, whether small or big,” he said. “That’s the most basic principle.”
“My children must also respect the elderly – loving babies and kids is easy, but it is harder to show concern and care for the older generation. But the more difficult it is, the more they need to practice it.”
|Year ended 31 Dec
|Profit before tax||149,094||77,394||50,476||28,277|
|Quarter ended 31 March (RMB 000)||1QFY2017||1QFY2016||yoy chg|
|Profit before tax||29,272||28,065||4.3%|
Source: Company data
|Outlook & Risks|
Zhongmin Baihui Retail Group Ltd
Zhongmin Baihui Retail Group Ltd., an investment holding company, owns, operates, and manages a chain of department stores and supermarkets in the People’s Republic of China. As of December 31, 2016, it operated 11 self-owned stores and 3 managed stores with a total gross floor area of approximately 182,000 square meters. The company offers its merchandise, lifestyle products, and customer-oriented services to middle income bracket consumers, as well as a range of groceries in Fujian Province. It also provides logistics and procurement services, as well as engages in the temporary and seasonal lease of spaces in the department stores. The company was founded in 1997 and is based in Singapore.