20220822-招银国际-中国利郎-01234.HK-Resilient_given_pandemic_plus_decent_yield_6页_1mb

报告摘要

China Lilang (1234 HK) Company Update Summary

Core Content and Key Information

Company Overview: China Lilang is a Hong Kong-listed company and a wholly owned subsidiary of CMB International Securities.
Valuation: The company is currently trading at HK$3.85, with a target price of HK$4.46 (down from HK$4.94). It offers a 10.5% FY22E yield and a 7x FY22E P/E ratio, which is considered attractive compared to the 5-year average of 8x P/E.
Earnings Performance: In 1H22, net profit was roughly in line with expectations at RMB 250mn, despite a 3% YoY sales increase to RMB 1.354bn. The sales growth was below CMBI's estimate by 13%, primarily due to the pandemic's impact and delayed shipments. However, the net profit growth was better than expected, attributed to improved gross profit margins and a better tax rate, partially offset by slightly higher operating expenses.
Inventory Management: Inventory days remained fairly stable at 217 in 1H22, only 9 days higher than 1H21, indicating strong inventory management.
Dividend Policy: The company maintained its dividend payout ratio, raising it to 72% from 66% the previous year, showing confidence in its financial stability.
Guidance Revisions: The company revised its FY22E retail sales growth target from 10% to single-digit due to pandemic effects and cautious consumer purchasing power.
Net Profit Estimates: The net profit estimates for FY22E, FY23E, and FY24E were cut by 12%, 10%, and 10% respectively, due to weaker wholesale sales, lower gross profit margins, and higher operating expenses.
Target Price Justification: The target price is based on a 7x FY23E P/E ratio, reflecting the company's potential for recovery and the current attractive valuation.

Main Views and Analysis

Resilience in Performance: Despite the challenges posed by the pandemic in 2Q22, the company showed resilience with a net profit decline of only 5% YoY.
Retail Sales Recovery: Retail sales improved in Jul-Aug 2022, with a trend better than 1H22, indicating a possible recovery in the retail sector.
Positive Outlook for 2H22E: The company is expected to benefit from the reopening of the economy, the continued improvement of the smart casual collection, and the growth of e-commerce.
Management Confidence: Management believes the retail sales trend in Jul-Aug 2022 aligns with the growth of trade fair orders in Fall 2022, suggesting a low chance of order cancellations.
Segment Performance:
- LILANZ: Sales growth was modest in FY22E, with a 6.1% increase. Gross margin improved from 44.9% to 45.2%.
- Smart Casual: Sales grew by 10.0% in FY22E, with a rising gross margin to 45.2%.
- Total Sales: Overall sales grew by 6.9% YoY in FY22E, with a 17.8% increase in net profit.
Financial Ratios:
- P/E: 7x for FY22E, 6x for FY23E, and 5.2x for FY24E.
- P/B: 1.0 for FY22E, 1.0 for FY23E, and 0.9 for FY24E.
- ROE: 14.0% for FY22E, 15.8% for FY23E, and 17.5% for FY24E.
- Yield: 10.5% for FY22E, 12.4% for FY23E, and 14.5% for FY24E.
Cash Flow and Balance Sheet:
- Net Cash from Operating Activities: RMB 553mn in FY22E, with a slight decrease in FY23E to RMB 700mn and a decrease in FY24E to RMB 789mn.
- Current Ratio: 2.6 in FY22E, decreasing slightly to 2.5 in FY23E and 2.4 in FY24E.
- Quick Ratio: 2.0 in FY22E, remaining stable at 1.9 in FY23E and 1.8 in FY24E.
- Inventory Turnover Days: Decreased from 165 in FY21A to 140 in FY22E, showing efficient inventory management.
- Total Debt/Equity Ratio: Remained stable at 6% in FY22E and decreased to 5% in FY23E and FY24E.
Analyst Recommendation: The analyst maintains a BUY rating but lowers the target price to HK$4.46, based on revised expectations for future performance and valuation.

Key Drivers and Risks

Growth Drivers: Reopening of the economy, the improvement of the smart casual collection, and the expansion of e-commerce.
Risks: Continued impact of the pandemic, cautious consumer behavior, and potential challenges in maintaining sales growth and profitability.

Summary of Earnings Revisions

Revenue: Revised down by 7.9% for FY22E, 6.9% for FY23E, and 5.5% for FY24E.
Gross Profit: Revised down by 10.2% for FY22E, 8.2% for FY23E, and 5.3% for FY24E.
EBIT: Revised down by 12.8% for FY22E, 9.8% for FY23E, and 9.8% for FY24E.
Net Profit: Revised down by 12.4% for FY22E, 9.5% for FY23E, and 9.5% for FY24E.
Diluted EPS: Revised down by 12.4% for FY22E, 9.5% for FY23E, and 9.5% for FY24E.
Gross Margin: Increased from 44.9% to 45.2% in FY22E, with a projected increase to 48.3% in FY24E.
EBIT Margin: Increased from 18.8% to 20.8% in FY22E, with a projected increase to 21.0% in FY24E.
Net Profit Margin: Increased from 15.7% to 16.7% in FY22E, with a projected increase to 17.5% in FY24E.

Analyst Certification

The analyst certifies that the views expressed in the report reflect their personal views and that they have no financial interest in the company.
The analyst confirms that they did not trade in the stock within 30 days prior to the report's issue and will not trade in the stock for 3 business days after the report's issue.
The analyst does not serve as an officer of any of the Hong Kong listed companies covered in this report.

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 by CMBIGM.
OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months.
MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months.
UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months.