20140926-招商证券_香港_-I.T-00999.HK-最坏时期已成过去_反弹复苏近在咫尺_22页_1mb

I.T Summary: Financial Performance, Strategy, and Business Overview

Core Content

I.T is a leading fashion retailer in the Greater China region, operating a multi-brand, multi-platform business model that includes over 300 fashion brands and more than 700 stores globally. The company's strategy emphasizes PRC-focused expansion, leveraging its in-house brands and international partnerships to maintain a competitive edge.

Main Financial Highlights

Revenue and Growth

• Historical and forecast revenue: I.T's revenue has shown consistent growth, with forecasted increases in FY15E to FY17E.
• Regional Breakdown: The PRC has been the fastest-growing market, with revenue increasing significantly from FY12 to FY17E.
• Net Profit: Recurring net profit has grown from HKD280 million in 1H14 to HKD479 million in FY17E, reflecting improved profitability.

Margins and Profitability

• Gross Margin: Maintained at around 60% in the PRC and Hong Kong, with a slight decline in Japan and Macau/other areas.
• EBIT Margin: Increased from 6.2% in FY13 to 7.4% in FY17E, indicating better cost control and operational efficiency.
• Recurring Net Margin: Improved from 4.1% in FY13 to 5.4% in FY17E, showing enhanced profitability.

Key Financial Metrics

• EPS: Increased from HKD0.23 in FY13 to HKD0.39 in FY17E.
• DPS: Rose from HKD0.10 in FY13 to HKD0.16 in FY17E, suggesting better dividend policy.
• Payout Ratio: Increased from 43.9% in FY13 to 50.9% in FY17E, indicating a more aggressive dividend distribution strategy.

Expansion Strategy

PRC Focus

• POS Distribution: As of end-FY14, I.T had 396 POS in the PRC, with 253 self-operated and 113 franchise.
• In-House Brands: The proportion of in-house brands (e.g., CHOCOLATE and Aape) is expected to increase.
• Market Choice: New POS will primarily be in second and third-tier cities to benefit from lower rental and staff costs.
• Multi-Brand Model: This allows I.T to open more stores in the same area and negotiate better rental terms with landlords.

International Markets

• Macau and Overseas: I.T has 67 POS in Macau and overseas, with strong revenue growth and operating margins.
• Future Plans: Expansion into new markets such as the Middle East, South East Asia, East Asia, and North America is expected.

Key Markets and Performance

Japan

• Acquisition: I.T acquired a 90.27% stake in Nowhere Group in 2011, gaining the Bathing Ape brand.
• Performance: The Japan business turned around in FY14, posting a positive operating profit of HKD99.7 million. However, there are no plans for more POS in Japan.
• Operating Margin: Improved from 10.5% in FY12 to 24.0% in FY17E.

Galeries Lafayette JV

• Joint Venture: A 50/50 JV with Galeries Lafayette to establish department stores in China.
• Performance: The JV has been loss-making, with an operating loss of HKD31 million in 2H14. Losses are expected to continue through FY16E but at a decreasing rate.

Risk Analysis

• Inventory Build-Up Risk: High sensitivity to inventory levels due to fashion trends. Aggressive discounts may be needed in case of sales downturns.
• Department Store Operations: Potential long-term losses or unmet synergies could negatively impact earnings.
• Currency Risk: 40% of revenue comes from Europe and Japan, making the company vulnerable to fluctuations in the euro and JPY.
• Retail Conditions: Deterioration in Hong Kong and PRC retail sales could harm growth and inventory-clearing efforts.
• Competition: Increased direct competition from international brands and online e-commerce platforms.

Brand Portfolio

International Brands

• Includes names such as Alexander McQueen, Givenchy, Tsumori Chisato, and Zadig & Voltaire.
• Sold through both multi-brand and single-brand stores.

In-House Brands

• izzue: Launched in 1999, with a price range of HKD300–10,000.
• b+ab: Launched in 1995, focusing on mass-market quality ladies fashion.
• 5cm: A unisex label with a price range of HKD300–8,000.
• :CHOCOLATE: Launched in 2006, known for collaborations with non-apparel brands.
• tout a coup: Offers a cheerful wardrobe for young ladies with a French style.
• Venilla suite: Ladies' footwear with a price range of HKD700–4,000.
• Bathing Ape brands: Includes A Bathing Ape, Bape, baby milo, and others, with high ASPs (HKD300–>10,000).

Management Team

• SHAM Kar Wai: CEO, co-founder, and responsible for strategic development.
• SHAM Kin Wai: Chief Creative Officer, focused on product design and merchandising.
• TSANG Hing Hung: CFO with extensive experience in finance and strategic management.
• CHAN Wai Kwan: Managing Director of I.T China, with PRC experience in fashion retail.
• HO Suk Han: Company Secretary, overseeing legal matters in the PRC.

SWOT Analysis

Strengths

• Leading position in the Greater China region.
• Diverse brand portfolio and multi-platform retail model.
• Seasoned management with strong relationships with European and Japanese fashion brands.
• Strong bargaining power with landlords due to brand portfolio.

Weaknesses

• Currency risk due to reliance on international brands.
• Potential losses from the Galeries Lafayette JV.
• Vulnerability to loss of exclusive international brands.
• High dependency on fashion trends and market conditions.

Conclusion

I.T continues to grow its presence in the PRC with a strategic focus on in-house brands and multi-brand retailing, which provide flexibility and leverage. The company has improved its financial performance, with rising EBIT and net profit margins. However, it faces challenges such as currency risk, potential losses from the Galeries Lafayette JV, and competition from both traditional and online retailers. The company's strong brand portfolio and experienced management team provide a solid foundation for future growth.