20170126-招商证券_香港_-江南布衣-03306.HK-Fashion_leader_in_a_niche_designer_market_37页_2mb_2mb

Summary of JNBY (3306 HK) Company Report

Core Content

JNBY (3306 HK) is identified as a leading designer brand fashion house in China, with a market share of 10% in the designer brand fashion industry and 0.2% in the broader apparel industry. The company operates with a multi-brand strategy, including its core brand "JNBY" and newer brands such as "CROQUIS", "jnby by JNBY", and "less". It is positioned as a key player in a rapidly growing niche designer market, with strong design capabilities and an omni-channel interactive platform that supports its business model.

Main Points

• Market Leadership: JNBY holds the largest market share in China's designer brand fashion industry and is expected to outperform the sector's growth.
• Growth Prospects: The designer brand fashion industry in China is expected to grow at a CAGR of 26.7% from 2016 to 2020E, driven by consumers' demand for unique and individualistic fashion.
• Financial Performance:
  • Recurring Earnings CAGR: 20% for FY16-19E, driven by a 18% revenue CAGR and margin expansion.
  • Recurring Net Profit: Expected to grow from RMB208 million in FY16 to RMB454 million in FY19E.
  • Recurring EPS: Projected to increase from RMB0.42 in FY16 to RMB0.87 in FY19E.
  • Dividend Yield: Attractive with a recurring dividend yield of 7%.
• Store Expansion: JNBY plans to expand its retail network to 1,916 POS by FY19E, with a net addition of 200 stores annually. The self-operated to distributor-operated store ratio is expected to remain around 1:2.
• Online Channel: Online sales are expected to grow at 15% to 20% YoY for FY17-19E, supported by a diversified product range and new brand strategies.
• Valuation: The target price is HK$7.77, based on a FY17E target P/E of 11x, which is a 10% premium over the peer group average of 10x. This is justified by the company's market leadership, strong earnings growth, and unique omni-channel platform.
• Key Risks:
  • Intense competition in the apparel sector.
  • Difficulty in maintaining same-store sales growth (SSSG).
  • Challenges in differentiating products amidst evolving fashion trends.

Financial Highlights

Store Expansion and Sales

• Store Growth:
  • Net store openings: 200 per annum for FY17-19E.
  • Self-operated stores: 60 per annum, with an annual growth of 14% to 11%.
  • Distributor-operated stores: 140 per annum, with an annual growth of 16% to 12%.
• Store Breakdown by Brand:
  • JNBY: 696 stores (FY15) to 745 (FY19E).
  • CROQUIS: 166 (FY15) to 376 (FY19E).
  • jnby by JNBY: 182 (FY15) to 555 (FY19E).
  • less: 68 (FY15) to 165 (FY19E).
  • Pomme de terre: 0 (FY15) to 75 (FY19E).
• Average Sales per Store:
  • Self-operated: 5.9% growth in FY16, expected to slow to 0.4% / 2% / 3% for FY17-19E.
  • Distributor-operated: -5% in FY16, expected to improve to 1% / 2% / 3% for FY17-19E.

Operational Efficiency

• Gross Margin (GPM): Expected to expand from 61.4% in FY15 to 64.3% in FY19E.
• Operating Margin (OPM): Staff and rental costs are expected to increase slightly, but the company is projected to maintain improved OPM due to operational efficiencies and cost management.
• Economies of Scale: Expected to continue driving cost improvements and margin expansion.

Investment Thesis

• Rationale for Buy Rating: Based on strong market leadership, above average earnings growth, healthy balance sheet, and a unique omni-channel platform.
• Target Price: HK$7.77, representing a 16% upside from the current price of HK$6.72.
• Dividend Yield: Attractive at 7%, with a high payout ratio of 75% in FY17E.
• Valuation Premium: The target P/E is 10% higher than the peer group average, justified by the company's unique positioning and growth potential.

Risk Analysis

• Intense Competition: The apparel sector is highly competitive, which could affect market share and profitability.
• SSSG Performance: The company's same-store sales growth could be weaker than expected, impacting revenue growth.
• Product Differentiation: Maintaining product differentiation amid evolving fashion trends is a key challenge.

Conclusion

JNBY is a leader in China's designer brand fashion market with a strong multi-brand strategy and an omni-channel platform. It is expected to maintain strong earnings growth and margin expansion, supported by store expansion and brand diversification. The company's valuation is justified by its market position and growth potential, making it an attractive investment opportunity. However, potential risks such as competition and SSSG performance should be closely monitored.