China Lilang (1234 HK) Company Update Summary
Core Content and Key Points
- Company Overview: China Lilang is a Hong Kong-listed company and a subsidiary of CMB International Capital Corporation, which is in turn a wholly owned subsidiary of China Merchants Bank.
- Current Rating and Target Price: The company is rated BUY, with a revised Target Price (TP) of HK$4.94, down from the previous TP of HK$6.27. The current price is HK$3.88, indicating a +27.4% upside.
- Valuation: The company is currently trading at 6x FY22E P/E and offers a 12% FY22E yield, both below the 5-year average, making it appear undervalued.
Financial Performance and Outlook
FY21 Results
- Revenue: RMB 3.379bn, up 26.1% YoY, beating estimates by 7%.
- Net Income: RMB 468mn, down 16.1% YoY, missing estimates by 34%.
- Net Profit Margin: 13.9% (vs 20.8% in FY20), due to unexpected inventory provisions and lower gross profit margins.
- Key Drivers: Sales growth was driven by the smart casual business and inventory resales, but net profit was impacted by higher losses and inventory provisions.
FY22E Forecast
- Revenue: RMB 3.922bn, with a YoY growth of 16.1%.
- Net Income: RMB 615mn, with a forecasted net profit margin of 15.7%, which is expected to gradually improve to 16.2% in FY23E and 17.5% in FY24E.
- EPS: RMB 0.513 (vs consensus of RMB 0.622), indicating a -21.1% difference.
- Margin Improvements: Gross margin is expected to rise from 44.9% in FY20 to 48.2% in FY24E, driven by the shift to a direct-to-retail model and better inventory management.
Strategic Adjustments and Business Performance
- Retail Sales Growth: Management targets a 10% growth in FY22E, with a 10%+ growth in e-commerce.
- New Store Openings: 50-150 new stores are planned, focusing on high-end locations.
- Store Productivity: Improved due to the consignment model and more efficient inventory sharing.
- Smart Casual Business: Expected to turn profitable, contributing to margin improvements.
Earnings and Financial Metrics
Earnings Summary (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
2,681 |
3,379 |
3,922 |
4,335 |
4,700 |
| YoY Growth (%) |
-26.7 |
26.1 |
16.1 |
10.5 |
8.4 |
| Net Income (RMB mn) |
557 |
468 |
615 |
702 |
822 |
| EPS (RMB) |
0.465 |
0.390 |
0.513 |
0.585 |
0.683 |
| YoY Growth (%) |
-31.4 |
-16.1 |
31.4 |
14.0 |
16.8 |
| P/E (x) |
7.0 |
8.1 |
6.3 |
5.5 |
4.7 |
| P/B (x) |
1.1 |
1.0 |
1.0 |
0.9 |
0.9 |
| Yield (%) |
11.5 |
8.9 |
11.9 |
13.6 |
15.9 |
| ROE (%) |
15.4 |
12.8 |
16.3 |
17.6 |
19.5 |
Earnings Revision
| Metric |
New (FY22E) |
New (FY23E) |
New (FY24E) |
Old (FY22E) |
Old (FY23E) |
Diff (%) |
| Revenue |
3,922 |
4,335 |
4,700 |
3,421 |
3,763 |
+14.7% / +15.2% |
| Gross Profit |
1,818 |
2,063 |
2,264 |
1,662 |
1,858 |
+9.4% / +11.0% |
| EBIT |
737 |
870 |
1,024 |
917 |
1,058 |
-19.7% / -17.7% |
| Net Profit |
615 |
702 |
822 |
782 |
901 |
-21.3% / -22.1% |
| Diluted EPS (RMB) |
0.513 |
0.585 |
0.683 |
0.650 |
0.749 |
-21.1% / -21.9% |
Valuation Comparison
| Company |
Ticker |
Rating |
12m TP (LC) |
Price (LC) |
Upside (%) |
Mkt. Cap (HK$mn) |
P/E (x) |
P/B (x) |
ROE (%) |
Yield (%) |
| China Lilang |
1234 HK |
BUY |
4.94 |
3.88 |
+27.4% |
4,646 |
6.3 |
0.9 |
12.8 |
11.9 |
| Bosideng Int'l |
3998 HK |
BUY |
5.31 |
3.59 |
+48% |
39,079 |
14.3 |
2.6 |
17.5 |
5.0 |
| Jnby Design |
3306 HK |
BUY |
14.51 |
9.27 |
+57% |
4,809 |
6.1 |
2.1 |
37.1 |
11.1 |
| Cosmo Lady |
2298 HK |
NR |
n/a |
0.44 |
n/a |
979 |
n/a |
0.4 |
1.2 |
1.7 |
| Giordano |
709 HK |
NR |
n/a |
1.56 |
n/a |
2,463 |
13.0 |
n/a |
7.8 |
7.7 |
| Koradior |
3709 HK |
NR |
n/a |
11.70 |
n/a |
8,237 |
10.7 |
1.7 |
17.2 |
4.6 |
| Esprit Holdings |
330 HK |
NR |
n/a |
0.86 |
n/a |
2,435 |
n/a |
n/a |
-62.7 |
n/a |
| La Chapelle |
6116 HK |
NR |
n/a |
0.39 |
n/a |
627 |
n/a |
n/a |
n/a |
n/a |
| Bauhaus Intl |
483 HK |
NR |
n/a |
0.53 |
n/a |
195 |
n/a |
n/a |
53.5 |
n/a |
Assumptions and Financial Projections
Sales by Segment
| Segment |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| LILANZ |
2,215 |
2,737 |
3,248 |
3,593 |
3,899 |
| Smart Casual |
483 |
642 |
674 |
742 |
801 |
| Total |
2,698 |
3,379 |
3,922 |
4,335 |
4,700 |
Sales Growth by Segment
| Segment |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| LILANZ |
-32.1% |
23.6% |
18.6% |
10.6% |
8.5% |
| Smart Casual |
21.3% |
32.9% |
5.0% |
10.0% |
8.0% |
| Total |
-26.3% |
25.3% |
16.1% |
10.5% |
8.4% |
Operating Expenses Breakdown
| Expense |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Staff Costs |
2.1% |
3.3% |
3.9% |
3.8% |
3.8% |
| D & A |
1.1% |
3.0% |
3.5% |
3.7% |
3.8% |
| R & D |
4.5% |
3.8% |
4.5% |
4.5% |
4.5% |
| Selling & Distribution Costs |
18.3% |
23.5% |
23.6% |
23.7% |
22.9% |
| Admin Expenses |
4.0% |
5.1% |
4.8% |
4.8% |
4.7% |
| OP Margins |
24.3% |
15.8% |
18.8% |
20.1% |
21.8% |
Key Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross Margin |
44.9% |
41.9% |
46.4% |
47.6% |
48.2% |
| Operating Margin |
24.3% |
15.8% |
18.8% |
20.1% |
21.8% |
| Pre-Tax Margin |
25.9% |
16.6% |
19.4% |
20.5% |
22.1% |
| Net Margin |
20.8% |
13.9% |
15.7% |
16.2% |
17.5% |
| Effective Tax Rate |
19.8% |
16.6% |
19.0% |
21.0% |
21.0% |
| Current Ratio (x) |
2.8 |
2.6 |
2.5 |
2.5 |
2.4 |
| Quick Ratio (x) |
2.3 |
1.9 |
1.9 |
1.8 |
1.7 |
| Cash Ratio (x) |
1.4 |
1.2 |
1.0 |
0.9 |
0.8 |
| Inventory Turnover Days |
165 |
166 |
140 |
140 |
140 |
| Trade Payables Days |
256 |
162 |
162 |
162 |
162 |
| Total Debt / Equity Ratio (%) |
3 |
6 |
6 |
5 |
5 |
| ROE (%) |
15.7 |
12.7 |
15.8 |
17.2 |
19.0 |
| ROA (%) |
11.5 |
9.3 |
11.6 |
12.6 |
14.0 |
| EPS (RMB) |
0.47 |
0.39 |
0.51 |
0.58 |
0.68 |
| DPS (RMB) |
0.38 |
0.28 |
0.38 |
0.44 |
0.51 |
| BVPS (RMB) |
3.05 |
3.07 |
3.24 |
3.40 |
3.60 |
Analyst Certification and Disclosures
- The analyst certifies that the views expressed in the report accurately reflect their personal views and that their compensation is not directly or indirectly related to the specific views in the report.
- No transactions in the stock covered in the report were made within 30 days prior to the report's issue, and no trades are expected within 3 business days after.
- The analyst does not serve as an officer of any of the covered Hong Kong-listed companies and has no financial interests in them.
CMBIGM Ratings
- BUY: Stock with potential return of over 15% over next 12 months.
- HOLD: Stock with potential return of +15% to -10% over next 12 months.
- SELL: Stock with potential loss of over 10% over next 12 months.
- NOT RATED: Stock is not rated.
- OUTPERFORM: Industry expected to outperform the relevant market benchmark.
- MARKET-PERFORM: Industry expected to perform in-line with the market benchmark.
- UNDERPERFORM: Industry expected to underperform the market benchmark.
Summary
China Lilang (1234 HK) is a Hong Kong-listed company under CMB International, with a BUY rating and a revised target price of HK$4.94. Despite a missed FY21 net profit due to inventory provisions and lower margins, the company is expected to gradually improve in FY22E and beyond. The current valuation at 6x P/E and 12% yield is considered attractive, and the company is anticipated to benefit from the consignment model and e-commerce growth. The financial metrics show a decline in net profit margin in FY21, but an upward trend in FY22E and subsequent years, supported by the absence of provisions and improved sales from the smart casual business. The company is also expected to open new stores in high-end locations, which should enhance store productivity and overall performance.
