HONG KONG — Luxury goods companies are lining up to list on this city’s stock exchange and raise capital for expansion in the region, even amid escalating concerns that China is headed for a slowdown.
London-based jeweler Graff Diamonds is planning to raise as much as $1 billion in a listing next year, most likely in Hong Kong, according to a source close to the company. Also, Chow Tai Fook, a major jewelry player in Greater China, is planning a $3 billion initial public offering here before the end of the year. Coach is planning a secondary listing of its shares in Hong Kong; Italian motorcycle maker Ducati is reportedly eyeing an IPO here, as is Sitoy Group, a Hong Kong handbag company that supplies to Prada.
Prada, which raised nearly $2.5 billion in its Hong Kong IPO earlier this year, is looking at buying up to 20 percent of Sitoy’s share offer and would ultimately hold about 5 percent of the company as a “financial” investment, according to a person familiar with the situation. He stressed that Prada does not consider this a strategic acquisition.
Sitoy was established in 1968 and specializes in manufacturing handbags and other leather goods. The company has about 10,000 employees in Hong Kong plus factories in Dongguan and Yingde, according to the company.
The rush to do IPOs comes as companies look to expand their operations in China and elsewhere in Asia. By going public, companies not only raise capital for acquisitions and expansion but also increase their profiles in the region.
The timing of these listings isn’t ideal, given concerns about slowing growth in China. Factories in China’s Pearl River Delta have been seeing a slowdown thanks to uncertain outlooks in North America and Europe. The Federation of Hong Kong Industries last week warned that possible wage raises could put more than 20,000 Hong Kong-owned factories in the region at risk of closing or downsizing. Hong Kong’s economy grew by just 0.1 percent during the third quarter, only narrowly dodging recession.
Despite these concerns, market watchers say investor demand for IPOs could still be strong — if the price is right. China’s burgeoning luxury market is still doing well. Indeed, Hong Kong’s economy has been bolstered by Mainland Chinese shoppers, who show no signs of pinching pennies.
“I’m always astounded by demand for the luxury goods themselves; they’ve been a relentless outperformer and highlight the disposable income of new money in China,” said Ben Collett at Louis Capital Markets in Hong Kong.
To be sure, a slowdown would have some impact on China’s luxury spending. CLSA Asia-Pacific Markets analyst Aaron Fischer estimates that China’s demand for luxury goods could slow to 20 to 30 percent a year, down from 50 to 100 percent, mostly because of the larger base.
Still, investor appetite for luxury stocks appears fairly healthy.
“Luxury is doing quite well,” said Philip Mok, analyst at Phillips Securities in Hong Kong. Valuations in China’s retail sector are quite high at the moment, at around 28 to 40 times earnings, Mok said. Chow Tai Fook, as a leader in the jewelry market, is likely to price on the high end of valuations, above other local jewelers such as Chow Sang Sang, Empire Jewelry or Luk Fook. And while performance of the IPO market has been mixed as of late, luxury companies have fared relatively well. Prada shares performed better than expected while Hong Kong-based apparel maker Fornton Group, which listed in October, showed some gains in the first two days of trading.
Collett, for one, sees continued investor demand for both global and local luxury brand IPOs. “At the right price, local brands will probably be even more popular than global brands because of their familiarity,” he added.
Chow Tai Fook may not be a household name in the West, but in China the company is ubiquitous. According to a recent consumer survey by CLSA, Chow Tai Fook was the number-one jewelry brand in China in terms of name recognition. Swarovski and Chow Sang Sang came in a distant second and third, while Tiffany, Hermès and Cartier were at the bottom of the list.
The company, which is controlled by billionaire Cheng Yu-Tung, has a retail network of more than 1,500 points of sale in more than 250 cities in Mainland China, Hong Kong, Macau and elsewhere in Asia. Chow Tai Fook is the dominant jeweler in greater China, with a 57 percent market share on the mainland, according to people familiar with the company.
Sales for the fiscal year ended in March totaled $35 billion Hong Kong dollars, or $4.5 billion, up 52 percent from the year before. Sales are expected to reach $58 billion Hong Kong dollars this year, or $7.45 billion, up nearly 66 percent, according to people familiar with the company.
Chow Tai Fook plans to greatly expand its network — penetrating second-, third- and fourth-tier Chinese cities, averaging 200 new points of sale a year to reach 2,000 by 2016, according to the jeweler.
Chow Tai Fook, which translates roughly as “good fortune” in Cantonese, is controlled by one of Asia’s wealthiest families. Cheng’s son, Henry Cheng, oversees New World Development Ltd., a real estate and transportation conglomerate. The family’s businesses also include hotels, department stores, ports and others.
Like Chow Tai Fook, Graff is looking to expand in the region; the ultra-high-end jeweler is planning to open stores in Macau and Hangzhou, China, next year.
Luxury companies are banking more and more on Asian growth. CLSA forecasts that China will become a $101.4 billion market by 2020, making up 44 percent of the global market. For companies eyeing that growth, now is as good a time as any to make that move.
“It’s better sooner rather than later,” said Louis Capital’s Collett.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews