CITIC Securities: May Retail Sales Growth Rebounds Due to Holidays and E-commerce Promotions

According to the information from Zhitong Finance and Economics APP, CITIC Securities released a research report stating that in May 2024, social retail sales increased by 3.7% year-on-year, rebounding from the previous month, but lower than Wind's consensus expectation of 4.5%. Automobile sales continued to decline year-on-year; grain, oil, food, and daily necessities maintained growth; cosmetics, clothing, and knitwear turned positive, while gold and jewelry weakened; the performance of the real estate chain continued to differentiate. From January to May, service retail sales increased by 7.9% year-on-year, with the month-on-month growth rate slowing down due to base effects. Structurally, the performance still maintains the trend of necessities outperforming non-necessities, and services outperforming goods. Looking ahead, the institution believes that the degree of economic recovery in the second half of the year and the rise in CPI are important factors affecting social retail data.

CITIC Securities maintains the view that in the short term, there are consumption and investment opportunities. They believe that changes in economic expectations are important, and the strengthening of signals of recovery trends and the establishment of trends are expected to enhance the anticipation of a rebound in consumer sentiment, thereby driving valuation recovery. In terms of short-term allocation recommendations, considering the expectations of economic recovery and policy stimulation, they suggest maintaining positions in leading industries such as liquor, consumer internet, and beauty with valuations falling to low levels. They also recommend paying attention to: 1) opportunities in the pig breeding sector; 2) opportunities in the catering industry chain under the rise in CPI; 3) continuing to layout the elasticity of textile manufacturing order income to performance realization, while focusing on the improvement in revenue growth rates after the transition to the low base period in the second half of the year.

Key points from CITIC Securities:

Social retail sales growth in May has rebounded.

In May 2024, total social retail sales reached RMB 3.9211 trillion, up by +3.7%, lower than Wind's consensus expectation of +4.5%. Among them, the total retail sales of consumer goods above the designated size reached RMB 1.3773 trillion, up by +3.5%, with the growth rate of retail sales excluding automobiles and petroleum products at +7.4%. By region, urban consumer goods retail sales increased by +3.7% year-on-year, while rural consumer goods retail sales increased by +4.1% year-on-year, with rural consumption maintaining faster growth, but the gap narrowing. By category, retail sales of goods increased by +3.6% year-on-year and +1.6% month-on-month, while catering revenue increased by +5.0% year-on-year and +0.6% month-on-month, showing a decline compared to the growth rates of 10.5% and 35.1% in May 2023. From January to May, service retail sales increased by +7.9% year-on-year, with a month-on-month decrease of -0.5%, due to the base effect. The growth rate of social retail sales rebounded in May, driven by the May Day holiday on one hand, and the early promotion of e-commerce platforms boosting sales of cosmetics, home appliances, and other categories on the other hand. Additionally, policies such as "trade-in old for new" and "equipment renovation" gradually showing effects also became driving factors.

Automobiles: Continued decline, price wars ongoing.

In May, retail sales of automobiles above the designated size decreased by -4.4% year-on-year. According to data from the China Association of Automobile Manufacturers, sales in May increased by +1.5% year-on-year and +2.5% month-on-month, with the industry's price wars still ongoing.

Necessities: Grain, oil, food, and daily necessities maintain growth.

In May, retail sales of grain/oil/food above the designated size increased by +9.3% year-on-year/+10.0 percentage points year-on-year, while retail sales of daily necessities above the designated size increased by +7.7% year-on-year/-1.7 percentage points year-on-year. Both categories showed good growth due to their essential attributes. From January to May, online retail sales of goods increased by +19.6% for food, +9.0% for clothing, and +10.8% for daily necessities (compared to +8.4%, +14.6%, and +11.5% respectively in the same period last year) E-commerce promotions have to some extent driven the growth of online consumption; among retail units above a certain limit, the retail sales of specialty stores, convenience stores, and supermarkets increased by 5.1%, 4.9%, and 1.8% respectively year-on-year; department stores and brand specialty stores saw a decrease of 3.2% and 1.0% in retail sales, respectively. From January to May, physical e-commerce (based on a restated basis) increased by 11.5% year-on-year; the e-commerce penetration rate was 24.7% (compared to 23.1% in the same period last year).

Optional: E-commerce promotions driving cosmetics sales, weakness in gold and jewelry, and differentiation in the real estate chain.

In optional categories, in May, the year-on-year retail sales of cosmetics above a certain limit increased by +18.7%/+7.0pcts, while the year-on-year retail sales of gold and silver jewelry above a certain limit decreased by -11.0%/-35.4pcts, and the year-on-year retail sales of footwear and knitwear above a certain limit increased by +4.4%/-13.2pcts. In the real estate industry chain, in May, the year-on-year retail sales of household appliances and audiovisual products above a certain limit increased by +12.9%/+12.8pcts, furniture increased by +4.8%/-0.2pct year-on-year, and construction and decoration decreased by -4.5%/+10.1pcts year-on-year. E-commerce promotions and policies such as "trade-in for new" and "equipment renovation" may have a certain promotional effect.

Risk Factors:

Downward economic growth exceeding expectations, a corresponding unexpected decrease in consumer demand; risks of policy changes in various industries exceeding expectations; inflation exceeding expectations, insufficient pricing power affecting profitability, and other risks