HONG KONG — The delisting of New World Department Store China Ltd. will not significantly impact the business of its sister company, Chow Tai Fook Jewellery, Adrian Cheng, an executive director of both companies, said Thursday.
The proposed privatization was revealed Tuesday and makes it the second major Chinese department store chain, following Intime, to retreat from public trading as retailers struggle to adapt in a challenging retail environment.
New World Department Store China operates 40 department stores and two shopping malls across 22 cities in China, and is listed on the Hong Kong Stock Exchange. Both Chow Tai Fook Jewellery and New World Department Store China are majority-owned by the Cheng family.
“[For Chow Tai Fook], we work with different department stores so we will continue our partnerships [with them],” Cheng said at the annual earnings briefing of Chow Tai Fook Jewellery, declining to comment on the matter further.
The proposal for New World Department Store China offers 2 Hong Kong dollars, or 26 cents, in cash per share, representing a premium of about 73.5 percent over the average closing price in the last 180 trading days. If accepted, the transaction would amount to a value of 934.5 million Hong Kong dollars, or $119.8 million.
The statement pointed to “unprecedented challenges in recent years, particularly from the rapidly growing e-commerce platforms, as well as the influx of large-format shopping malls, which revolutionized the shopping habits of Chinese consumers significantly. Traditional brick-and-mortar retailers such as department stores therefore have suffered a significant reduction of foot traffic as a result of intensified competition.”
The move was welcomed by bank analysts, although it did not come as a surprise. A Citi report said it was not “unexpected” and privatization could help the group bring on a partner with online expertise. Intime revealed in January an offer from Alibaba and the company’s management to go private.
“The low valuation also hinders [New World Department Store Group China] to procure any strategic investors (online retail giants) to advance its business development,” although Citi added “visibility on NWDSC’s turnaround and crystallization of the hidden value remain low in the challenging department store industry.”
“It does give the company more flexibility as a private company to put through changes and/or restructuring,” CLSA consumer analyst Mariana Kou said. “The global retail industry has changed rapidly in recent years. The off-line channel is challenged by an online boom and many players are testing O2O cooperation and lifestyle, F&B, art concepts. The family’s K11 [art malls] is also an example.”
Chow Tai Fook Jewellery weathered a tough year, posting a core operating profit that decreased by 7.9 percent to 4.65 billion Hong Kong dollars, or $596.3 million, on revenue that dropped 9.4 percent to 51.25 billion Hong Kong dollars, or $6.57 billion.
However, management noted they had witnessed a recent upturn, with same-stores sales growth turning positive in Hong Kong and Macau in the fourth quarter, the first time the markets recorded a positive quarterly growth trend in the span of a year.
Chow Tai Fook managing director Kent Wong said the firm continues to seek out wholesale opportunities in the U.S. in locations that cater to Mainland Chinese travelers. The firm opened its second U.S. location, at a DFS Hawaii store.
Cheng also shed some light on the condition of his father, chairman Henry Cheng, who suffered a stroke in February and has been taking a break from managing the business.
“He’s OK, he’s at home recovering,” the younger Cheng said, adding that his father would be back soon.