JT 8.2016This 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.

ZMBH mallZhongmin Baihui Retail Group operates 14 malls in southern China.
(Photo: Company)


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.

Two years later, he rented a small counter in a shopping centre in Anxi retailing apparel and textiles, before moving on to a larger storefront offering daily necessities ranging from recorders and earphones to lighters and hairdryers.

“Those items were seen as trendy and fashionable in a rapidly urbanising city, as China was transitioning to an industrial economy from an agricultural one,” said Chen, 50.

ChenKaitong 2013
LQM ad141eWe were seeking a good location, and when this opportunity came up in Quanzhou, we took it. At that time, no one wanted it, but it turned out to be a very profitable store – such are the peculiarities of the marketplace.

- Chen Kaitong

Zhongmin Baihui Retail Group

(NextInsight file photo)

Between 1993 and 1996, his retail outlets expanded in size and their locations shifted to air-conditioned shopping malls.

In 1997, together with Executive Chairman Lee Swee Keng, Chen opened the first Zhongmin Baihui outlet in Quanzhou, Fujian province.

The characters Zhong Min (中闽) refer to China and the Min region, which was what Fujian was called in the early days. Bai Hui (百汇) means a store with multiple product lines.

“We were seeking a good location, and when this opportunity came up in Quanzhou, we took it. At that time, no one wanted it, but it turned out to be a very profitable store – such are the peculiarities of the marketplace,” said Chen, who was appointed Chief Executive Officer of Zhongmin Baihui in December 2008.

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.


♦ Reading Trends Right

“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 the province was originally an agricultural community, and is in early stages of urbanisation, its consumer psyche is still evolving, with the younger generation willing to spend more, he added.

Stock price  $1.10
52-week range 89c - $1.44
Market cap S$211.3m
Price-book 6.15 x
Dividend yield 4.45%
Source: SGX StockFacts

As China’s economy continues to slow, Zhongmin Baihui will whittle down operating costs and tweak its business models to achieve greater efficiency.

The Group has reduced layers in the organisation to cap labour costs and boost productivity. It has also cut the number of sales staff assigned on a per square feet basis in its retail outlets to optimise manpower resources, Chen said.

It is also shrinking store sizes – opening outlets of between 1,000 square metres and 3,000 square metres, compared with average sizes of 6,000 square metres to 33,000 square metres previously.

These smaller branches, selling basic necessities, also require lower investment, construction cost and rentals, resulting in significant savings for the Group.

For well-managed companies in China, a slowing economy is more of a boon than a bane, throwing up a slew of opportunities, Chen said.

“If you have five people sharing a cake, and two pull out, one person will get a double share,” he added.

“Right now, we’re benefiting from the downcycle in the property market. It’s easier to lease space, and rents are falling.”

Favourable Demographics

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.”

Financial results

Year ended 31 Dec 
(RMB 000)
FY2016 FY2015 FY2014 FY2013
Revenue 872,400 829,924 882,350 879,188
Profit before tax 149,094 77,394 50,476 28,277
Net profit 97,823 52,644 31,983 9,982

Quarter ended 31 March (RMB 000) 1QFY2017 1QFY2016 yoy chg
Revenue 258,346 229,872 12.4%
Gross Profit 80,278 84,287 -4.8%
Profit before tax 29,272 28,065 4.3%
Net Profit 20,807 20,404 2.0%

Source: Company data

Outlook & Risks
    • Given China’s weak economy, the Group will de-emphasis same-store sales (SSS). It will focus on productivity gains and cost-cutting to reduce operating expenses. It will also re-balance the mix of revenue streams to raise or maintain its operating profit margin.
    • In line with its strategy of opening smaller stores, it has signed two leases for two smaller stores. The current slowdown in the real estate market has opened up many interesting opportunities, and it hopes to secure leases for relatively smaller stores in future.

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.

For its 1st quarter results for the period ended 31 March 2017, click here.

The company website is: www.zhongminbaihui.com.sg.

The ccompany's Stock Facts page is here.

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