20220302-招银国际-江南布衣-03306.HK-Short-term_investment_for_long-term_gain_8页_1mb

JNBY Design (3306 HK) Company Update Summary

Core Content and Key Information

JNBY Design (3306 HK) is a company in the China apparel sector, and the report provides an update on its financial performance, earnings guidance, valuation, and market position. The investment recommendation remains BUY, but the target price has been revised down to HK$14.51, reflecting a 37.1% upside from the current price of HK$10.58.

The company revised its FY22E guidance due to weakened demand and increased brand building investments, which included higher A&P and D&A expenses. However, the FY24E target remains unchanged, as management is confident in the progress of brand equity, store image, product design, and customer experience improvements.

Financial Highlights

Earnings Summary (YE 30 Jun)

1H22 Performance

• Revenue: Increased by 7% YoY to RMB 2.49bn, slightly below CMBI estimates.
• Net profit: Declined by 4% YoY to RMB 444mn, missing CMBI estimates by 13%.
• GP margin: Strongly beat expectations, increasing by 1.7ppt.
• S&D expenses: Rose by 102% YoY, significantly impacting net profit.

Earnings Revision

• Revenue: Revised down by 7.4% for FY22E, 5.8% for FY23E, and 4.1% for FY24E.
• Net profit: Revised down by 15.9% for FY22E, 11.1% for FY23E, and 4.2% for FY24E.
• Diluted EPS: Revised down by 15.9%, 11.1%, and 4.2% respectively.

Valuation

• Current P/E: 8x FY6/23E, significantly below the 3-year average of 10x.
• Dividend Yield: 10.1% FY6/23E, which is attractive.
• Target Price: HK$14.51, based on 10x FY6/23E P/E.
• Valuation Comparison: The company is undervalued relative to peers, with a PEG of 0.3 and ROE of 37.1%.

Market and Shareholder Information

• Market Cap: HK$5,613 million.
• Shareholding Structure:
  • Mr. Wu Jian & Family: 59.20%
  • FIL Ltd.: 2.37%
  • Vanguard Group: 1.35%
  • Franklin Resources: 1.31%
  • Free Float: 37.07%

Share Performance

Key Assumptions

• Sales by brand:

  • JNBY: RMB 2,414 mn (FY22E), 65.7% of total sales.
  • CROQUIS: RMB 692 mn (FY22E), 16.0% of total sales.
  • jnby by JNBY: RMB 657 mn (FY22E), 15.2% of total sales.
  • Other brands: RMB 91 mn (FY22E), 2.1% of total sales.

• Sales by channel:

  • Self-owned: RMB 1,748 mn (FY22E), 40.6% of total sales.
  • Distributors: RMB 1,812 mn (FY22E), 42.1% of total sales.
  • Online: RMB 740 mn (FY22E), 17.2% of total sales.

• Operating Expenses:

  • S&D costs / sales: 38.4% (FY22E), increasing from 34.6% (FY21A).
  • Staff costs / sales: 9.5% (FY22E), increasing from 8.7% (FY21A).
  • A&P expenses / sales: 8.3% (FY22E), increasing from 6.9% (FY21A).
  • D&A / sales: 1.4% (FY22E), increasing from 1.7% (FY21A).
  • Provisions for inventory / sales: 2.7% (FY22E), decreasing from 2.9% (FY21A).

Industry and Peer Comparison

• Peer Valuation:

  • JNBY Design: P/E of 8.2 (FY1E) and 9.7 (FY2E), P/B of 2.5 and 2.3, ROE of 37.1%.
  • Bosideng International: P/E of 16.9 and 13.9, P/B of 3.1 and 2.8, ROE of 17.5%.
  • China Lilang: P/E of 6.3 and 5.4, P/B of 1.1 and 1.0, ROE of 15.6%.
  • Giordano International: P/E of 14.5 and 11.4, P/B of n/a, ROE of 5.2%.
  • Esprit: P/E of n/a, P/B of n/a, ROE of n/a.
  • Hugo Boss: P/E of 28.7 and 20.0, P/B of 4.1 and 3.5, ROE of 6.3%.

• Average P/E:

  • H shares Apparel: 11.5 (FY1E) and 9.6 (FY2E).
  • A shares Apparel: 18.8 (FY1E) and 14.9 (FY2E).
  • International Apparel: 15.8 (FY1E) and 13.9 (FY2E).

Conclusion

Despite the 1H22 results slightly missing expectations, the valuation is considered attractive with a P/E of 8x and 10.1% dividend yield. The short-term catalysts are limited, but the long-term growth and improvements in brand equity and customer experience are positive. The investment recommendation remains BUY, with a revised target price of HK$14.51. The company is expected to recover and achieve its FY24E targets.