20150120-工银国际-VIEWPOINTS_EXPRESS_13页_369kb_369kb

361 Degree International (1361.HK) Summary

Core Content

361 Degree International (1361.HK) is a Chinese sportswear company that has shown improvement in its operating performance, which is not fully reflected in its stock price. The report suggests that the company's financial results for FY14 might be a catalyst for its stock price, and its current valuation at 8.4x FY15E PE is considered attractive compared to its peers.

Main Points

• Stock Performance: The stock price has outperformed the Hang Seng China Enterprises Index (HSCEI) by 15% over the past three months.
• Operating Performance:
  • Trade fair orders increased by 16% YoY in 3Q15, compared to 11% in 1H15.
  • Same-store-sales growth (SSSG) reached 5.5% YoY in 4Q14, up from 4.7% in 3Q14.
  • Average channel inventory turnover was 4.2x in 4Q14, and the average retail discount was 29%.
• Franchised Stores: The total number of franchised stores reached 7,319, with over 72% located in tier 3 or smaller cities.
• 361 Kids: Expanded to 2,142 points-of-sales, with 922 within composite or "3-in-1" stores, and SSSG of 6.3% based on 853 stores.
• Revenue Growth: Revenue growth is attributed to ~10% from 361 Kids and ~90% from trade fair orders, showing a strong growth momentum.
• Operating Leverage: Improved operating leverage due to no further impairment charges on account receivable compared to Rmb152mn in FY13.
• R&D Investment: Increased R&D investment led to better product quality and design, expected to slightly drag short-term earnings but boost long-term growth.
• Financial Costs: Reduced financial costs due to the repurchase of convertible bonds at a lower effective interest rate.
• Valuation: The stock trades at 8.4x FY15E PE, a 13% discount to its Hong Kong listed peers, making it attractive.

Key Information

Financial Summary

• Revenue: Rmb4,950.6mn in 2013, with growth in subsequent years.
• Net Profit: Rmb468.5mn in 2013, with fluctuations in subsequent years.
• EPS: Increased from Rmb0.1 in 2013 to Rmb0.3 in 2014.
• PER (Trailing): 15.7x in 2013, decreasing to 9.3x in 2014.
• Forward PER: 8.4x in 2015.
• PBR (Trailing): 0.7x in 2013, decreasing to 0.6x in 2014.
• EV/EBITDA: 1.1x in 2013, decreasing to 1.2x in 2015.
• Net Debt/Equity: -29.8% in 2013, increasing to -27.0% in 2014.
• Market Capitalization: HK$4.18bn (Rmb3.02bn), with a free float of 28.77%.

Shareholding Structure

• Ding Wuhao: 18.27%
• Ding Huilu Huang: 17.41%
• Ding Huirong: 17.41%
• Wang Jiabi: 9.07%
• Wang Jiachen: 9.07%
• Free Float: 28.77%

Cash Flow

• Net Cash from Operating Activities: Rmb321.0mn in 2013, with fluctuations in subsequent years.
• Net Cash from Investing Activities: Rmb347.6mn in 2013.
• Net Cash from Financing Activities: Rmb-279.4mn in 2013.
• Net Cash Changes: Rmb389.1mn in 2013.

Key Industry Highlights

• Meituan: Raised US$700 million in funding at a US$7 billion valuation.
• Yongche & Haier: Established a joint venture with US$1.28 billion for car rental and financial leasing.
• XueXiBao: Secured US$20 million in Series B funding for product development and expansion.
• Alibaba & 12306: Confirmed collaboration, with 12306 moving services to Alibaba's cloud.
• WeChat Investment Fund: Has 10 million users with over RMB100 billion in deposits and RMB3 billion in interest payments.

Market Performance Overview

Hong Kong Equities

• Hang Seng Index (HSI): Closed at 23,738 with a -1.5% change.
• H-share Index: Closed at 11,476 with a -5.0% change.
• Turnover: HK$127.9bn, with 34.7% change.
• HSI Turnover %: 32.4% of total turnover.
• CBBC, warrants %: 21.0% of total turnover.

China Equities

• CSI 300 Index: Closed at 3,355 with a -7.7% change.
• Shanghai Composite Index: Closed at 10,771 with a -6.6% change.
• Shenzhen Composite Index: Closed at 1,428 with a -3.4% change.

Asian Equities

• Nikkei 225: Closed at 17,014 with a 0.9% increase.
• Korea KOSPI: Closed at 1,903 with a 0.8% increase.
• Taiwan TWSE: Closed at 9,174 with a 0.4% increase.
• India Sensex 30: Closed at 28,262 with a 0.5% increase.

US/European Equities

• DJIA: Closed at 17,512 with no change.
• S&P 500: Closed at 2,019 with no change.
• NASDAQ: Closed at 4,634 with no change.
• UK FTSE 100: Closed at 6,586 with a 0.5% increase.
• Germany DAX: Closed at 10,242 with a 0.7% increase.
• France CAC40: Closed at 4,395 with a 0.3% increase.

Conclusion

361 Degree International's performance indicates a positive trajectory in its operating results and financial management. Despite its current stock price, the company's valuation appears attractive, and its FY14 results are expected to serve as a near-term catalyst. The report highlights the company's strong presence in the Chinese market, especially in tier 3 cities, and its strategic investments in R&D and financial restructuring. The TMT sector also shows various significant developments, including major funding rounds and collaborations, indicating a dynamic market environment.