20131113-巴黎银行证券-BOSIDENG_INTERNATIONAL_11页_485kb

Bosideng International Summary

Core Content

Bosideng International is a leading down apparel company in China, with a dominant market share. The report forecasts a significant decline in its financial performance for the first half of FY14 (1HFY14), driven by multiple factors including channel inventory issues, rising raw material and distribution costs, and increased competition. The company is expected to report a revenue decline of 6.6% y-y to RMB2,877m and a net profit drop of 36.0% y-y to RMB202m.

Main Points

• Profit Decline Forecast: The report expects a sharp profit decline in 1HFY14 due to revenue drops across all three business lines: down, OEM, and non-down apparel.
• Earnings Sensitivity: Bosideng's down segment accounts for 76% of total revenue, making its earnings highly sensitive to down sales. A 10% drop in down sales could lead to a 33.6% decline in net profit.
• Operating Margin Contraction: The company is expected to experience a contraction in operating margins due to operating de-leverage, despite a slight improvement in gross margin from product mix changes.
• Dividend Yield: The forecasted dividend yield for FY14 is 6.2%, and for FY15 it is 6.3%, which the report considers insufficient to support the stock.
• Target Price: The target price remains at HKD1.20, based on an unchanged DDM model, implying an 8.9x P/E and an 8.4% dividend yield in 2014E.
• Market Reaction: The report believes that poor interim results will trigger a further de-rating of the stock, as the market is likely to cut its earnings estimates.
• Valuation Metrics: Bosideng's current P/E is 12.0x for FY14E and 11.8x for FY15E, which is higher than its historical average. The EV/EBITDA ratio is 9.6x for FY14E and is expected to decline to 8.6x in FY16E.

Key Risks and Catalysts

• Negative Catalyst: The announcement of 1HFY14 results is expected to be a negative catalyst for the stock, as it is forecasted to miss earnings expectations.
• Upside Risks: Potential upside risks include better-than-expected performance in the down segment, improved cost control, and higher-than-expected dividend payouts.

Company Background

• Market Position: Bosideng holds over 35% of the combined market share of its four down apparel brands in China.
• Business Expansion: The company expanded into the menswear segment through acquisitions in 2009.
• Financials: Revenue is expected to decline from 2013A to 2014E, and net profit is forecasted to drop significantly. The company's operating EBITDA and EBIT margins are expected to fall, reflecting weaker operational performance.
• Dividend Policy: The company has a consistent dividend payout policy, with a 75% dividend payout ratio on recurring profits.

Key Assumptions

• Revenue Growth: Down segment revenue is forecasted to decline by 5.4% in 1HFY14, OEM by 12%, and non-down by 8%.
• Costs: Distribution costs are expected to increase as a percentage of revenue due to store expansion.
• Gross Margin: Gross margin is forecasted to remain stable at around 49.6% to 50.5%.
• Tax Rate: The effective tax rate is expected to remain at 25%.
• WACC: The weighted average cost of capital is assumed to be 12.0% with 0% terminal growth.

Valuation Highlights

• Recurring P/E: The recurring P/E ratio is 12.0x for FY14E and is expected to decline to 11.8x for FY15E and 11.1x for FY16E.
• Price/Book: The price-to-book ratio is 1.4x, with a slight decline expected in FY16E.
• EV/EBITDA: The EV/EBITDA ratio is 9.6x for FY14E and is projected to decline to 8.6x in FY16E.

Conclusion

The report reiterates a REDUCE recommendation, as the company faces significant challenges in maintaining profitability and market share. The forecasted earnings decline and valuation risks suggest that the stock may underperform in the short term. The target price remains unchanged, reflecting a cautious outlook on the company's ability to recover.