Lucror Analytics

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High Yield Experts

Credit Analyst, Lucror Analytics

Chuanyi Zhou

Credit Analyst

Credit

Lifestyle International Holdings / Credit

Lifestyle International Holdings (1212 HK)

We view Lifestyle International (LIHL) as "High Risk" on the LARA scale, given the increasing uncertainties related to the Hong Kong retail market amid social unrest and the COVID-19 outbreak. We remain cautious on the execution risk associated with the company’s Kai Tak project. Other risk factors include the volatility of its evolving financial investment portfolio, as well as refinancing risks in 2021 and 2022. That said, we like the strong competitive position of LIHL’s flagship stores in Causeway Bay and Tsim Sha Tsui. The company enjoys an advantage over rivals, as its stores have prime locations, strong branding, as well as low rental and inventory. Our fundamental Credit Bias is "Negative", given: [1] LIHL's vulnerability to extrinsic uncertainties, especially the social unrest and pandemic; [2] the growing financial investment portfolio, which translates into greater vulnerability to financial-market volatility; [3] aggressive investment appetite even amid a challenging operating environment, which will delay deleveraging; and [4] the apparent lack of progress for the Kai Tak project. That said, the two existing stores are cash-generating, with strong brand names and excellent locations. We remain cautious on the project-related execution risk and refinancing pressure related to the 2021-2022 maturity wall. We view LIHL’s corporate governance as "Weak" on the LAGA scale, considering: [1] that the company is controlled by Chairman Thomas Lau Luen Hung, who holds a c. 75% stake (weak); [2] the family dominates the Board, with the only two EDs being the Chairman’s son and daughter, while the Chairman’s sister is a NED (weak); [3] the track record of aggressive dividend payouts in previous years (weak); and [4] the related-party transactions with the Chow Tai Fook group (weak). That said, we consider this a less significant factor as Chow Tai Fook has sold its 20% stake in LIHL.

  We view Lifestyle International (LIHL) as "High Risk" on the LARA scale, given the increasing uncertainties related to the Hong Kong retail market amid social unrest and the COVID-19 outbreak. We remain cautious on the execution risk associated with the company’s Kai Tak project. Other risk factors include the volatility of its evolving financial investment portfolio, as well as refinancing risks in 2021 and 2022. That said, we like the strong competitive position of LIHL’s flagship stores in Causeway Bay and Tsim Sha Tsui. The company enjoys an advantage over rivals, as its stores have prime locations, strong branding, as well as low rental and inventory.   Our fundamental Credit Bias is "Negative", given: [1] LIHL's vulnerability to extrinsic uncertainties, especially the social unrest and pandemic; [2] the growing financial investment portfolio, which translates into greater vulnerability to financial-market volatility; [3] aggressive investment appetite even amid a challenging operating environment, which will delay deleveraging; and [4] the apparent lack of progress for the Kai Tak project. That said, the two existing stores are cash-generating, with strong brand names and excellent locations. We remain cautious on the project-related execution risk and refinancing pressure related to the 2021-2022 maturity wall.   We view LIHL’s corporate governance as "Weak" on the LAGA scale, considering: [1] that the company is controlled by Chairman Thomas Lau Luen Hung, who holds a c. 75% stake (weak); [2] the family dominates the Board, with the only two EDs being the Chairman’s son and daughter, while the Chairman’s sister is a NED (weak); [3] the track record of aggressive dividend payouts in previous years (weak); and [4] the related-party transactions with the Chow Tai Fook group (weak). That said, we consider this a less significant factor as Chow Tai Fook has sold its 20% stake in LIHL. 

Lifestyle International - Tear Sheet - Lucror Analytics