20211129-招银国际-波司登-03998.HK-Successful_new_product_and_premiumization_10页_1mb

Bosideng (3998 HK) Equity Research Summary

Core Content

Bosideng, a leading Chinese apparel company, has demonstrated resilience and growth despite challenging market conditions. The company's 1H22 results were slightly below expectations due to higher sales and marketing expenses, but the overall performance was deemed decent given the tough macro environment. CMB International Securities maintains a BUY rating and revises the target price to HK$6.69, which is +19.9% from the current price of HK$5.58.

Key Highlights

• Sales Growth: Bosideng's 1H22 sales increased by 16% YoY to RMB 5.4bn, aligning with CMBI's estimates.
• Net Profit: Net profit for 1H22 rose by 31% YoY to RMB 638mn, slightly below CMBI's estimate.
• Gross Margin Expansion: The company experienced significant gross margin expansion, though this was offset by increased S&D expenses.
• E-commerce Performance: The double 11 sales were outstanding, and e-commerce growth is accelerating.
• Product Launches: Successful product launches, such as the trench coat made of down apparel, contributed to growth.
• Premiumization Strategy: Bosideng is on track to increase its average selling price (ASP) to RMB 2,000+ within 3 years, up from RMB 1,600 in FY21 and RMB 1,000 in FY17.
• Valuation: The stock is currently valued at 19x FY23E P/E, which is lower than peers such as GOOS (31x), MONC (35x), and Li Ning (39x), making it attractive.

Main Points

• 1H22 Performance:
  • Sales growth was 16% YoY.
  • Net profit growth was 31% YoY.
  • The result slightly missed due to higher A&P expenses, but was considered decent given the macroeconomic challenges.
• Future Outlook:
  • Sales growth is expected to pick up in 2H22E, driven by:
    1. Improved sales growth in October–November.
    2. Colder weather in November compared to the previous year.
    3. Strong double 11 performance.
    4. Accelerating e-commerce growth.
    5. Successful new product launches.
  • Operating margin is projected to improve in 2H22E due to:
    1. Better operating leverage in offline stores.
    2. Reduced retail discounts (from 29% in 2020 to 16% in 2021).
    3. A&P expenses were mostly front-loaded in 1H22, allowing for better control in FY22E.
• Long-term Growth Strategy:
  • Branding: Continued investment in A&P, partnering with local designers and schools.
  • Product Development: Introduction of new product categories and a new research institute for high-tech R&D.
  • Channels: Expansion into new social media platforms like TikTok, Xiao Hong Shu, and Bilibili.
  • Premiumization: ASP is expected to rise to RMB 2,000+ in the next three years.

Key Financial Metrics

Valuation Comparison

Earnings Revision

Financial Assumptions

• Sales by Segment:
  • Down apparels: Expected to grow significantly in FY22E and FY23E.
  • OEM management: Steady growth with some fluctuations.
  • Ladieswear: Slight decline in FY21A but expected to improve.
  • Diversified apparels: Growth expected in FY22E and FY23E.
• Sales by Channel:
  • Down apparels: Both offline and online channels show positive growth.
  • Non-down apparels: Mixed performance across channels.
• Operating Expenses:
  • A&P expenses are a key factor in the company's strategy, with a focus on brand elevation and product innovation.

Conclusion

Bosideng remains a strong contender in the Chinese apparel sector, with a clear strategy for long-term growth. The company is investing in branding, product development, and channel expansion to drive premiumization and improve profitability. Despite some short-term challenges, the stock is considered undervalued compared to its peers and offers a good investment opportunity.