Summary. BUY and raised TP to HK$ 4.83, based on 26x FY21E P/E (rolled over from 20x FY20E). Despite the recent rally, we still find the Company’s positives not fully priced in, boosted by its brand upgrades and softening costs pressure. Given CMBI est. of 22%/ 29% sales/ NP CAGR in FY19-22E, we think its valuation of 22x FY3/21E P/E, 1.0x PEG and 3.1% yield is still attractive.
- 1H20E result may be prudent. We expect bosideng to deliver a 19%/ 22% YoY sales/ NP att. growth in 1H20E (ending Sep19). Drivers are 20%+/ high-teens/ negative HSD sales growth for down apparels/ OEM/ non-down apparels segments. Mild OP margin expansion to 10.5% (vs 10.3% in 1H19) is the result of 1ppt GP margin increase (better raw material costs) and 0.7 ppt increase in opex (as % of sales, due to greater A&P efforts in 1H20E).
- But we are still confident on FY20E sales growth. For FY3/20E, we are confident on brand upgrade initiatives such as: 1) Milan fashion show on Sep 2019, where the “starry” collection was released, designed by Italian famous painting artist - Ottavio Fabbri, had audiences like Hollywood superstar - Nicole Kidman, fashion blogger - Chiara Ferragni, Vogue Italia editor-in-chief - Emanuele Farneti and Supermodel - Kendall Jenner had her first Chinese brand runway walk, 2) launch of “Conquer the top/登峰” series on Oct 2019, which had equipped with state-of-the-art raw materials (e.g. North latitude 43° gold belt goose down, GORE-TEX fabric), functionality (e.g. RECCO Life Detector and FITGO TECH automatic lacing system) and designs, which is priced from RMB 5,800 to 11,800, 3) revamp of ~2,000 stores (vs 1,200 in FY19) and openings of 20 flagship stores (vs 4 in FY19), etc.
- Margins should climb, due to favorable product mix and raw material price. We expect GP margin to increase by 1.4 ppt to 54.5% in FY20E, thanks to: 1) 15-20% increase in ASP, led by more high-end products sales, 2) easing of goose and duck down prices (up by only ~6-7% and down by ~19-23% YoY in Oct 2019 respectively) and 3) favorable channel mix, where the higher margin E-commerce will grow at a faster rate (CMBI est. 60%). Just to note that our opex assumption (~ 40.7% of total sales) could still be conservative and factoring in zero operating leverage in FY20E. All in All, we are forecasting a 29%/ 40% YoY sales/ net profit growth in FY20E.
- Maintain BUY and raised TP to HK$ 4.83. We also lifted our FY20E/21E NP estimates by 6%/10%/10%, to factor in 1) faster trade fair sales growth and 2) higher GP margin. We maintain BUY and raised TP to HK$ 4.83, based on 26x FY21E P/E (rolled over from 20x FY3/20E, thanks to faster NP growth). The counter is attractive, at 22x FY3/21E P/E or 1.0x PEG.
