Even though Bosideng’s FY20E guidance remained unchanged, we have turned more positive as fundamentals improved: 1) speed up in retail sales growth in late Nov 2019, 2) solid customer acceptance of retail price hike and 3) faster store openings. The counter is attractive given its 20x FY3/21E P/E (vs GOOS’s 24x and MONC’s 26x) and 0.9x 3 years PEG. Reiterate BUY and TP of HK$ 4.83.
- Solid set of 1H20 results, 11% above CMBI est.. 1H20 sales/ NP att. rose by 29%/ 36% YoY to RMB 4.4/ 3.4 bn, beating CMBI est. by 9%/ 11% (BBG expect 30% YoY growth for FY20E), thanks to 1) better-than-expected down apparel sales, 2) faster store expansion, and 3) better tax rate. Excluding RMB 48mn impairment losses, adjusted NP could be up by 48% YoY. Also, proposed dividend was up 50% YoY, raising payout ratio to 85% (from 75%).
- Strong growth across channels and margin continued to climb in 1H20. Down apparel sales growth was robust across channels (39%/ 44%/ 39%/ 91% YoY for self-operated/ wholesales/ offline/ e-commerce), while climb in GP margin (more sales from mid-high end items) and rigid admin cost control (flattish vs last year) were more than able to offset surge in A&P expenses and impairment losses for womenswear brand 邦寶 (BUOUBUOU).
- FY20E guidance maintained while fundamentals trended better. Management reiterated its guidance (~40% down apparel growth, ~1-1.5 ppt GP margin and ~0.5-1.0 ppt OP margin expansion), while retail sales are better in Nov 2019 and product ASP hike was well accepted by consumers.
- Retail sales trend improved in Nov 2019 as weather got colder and the Company has well prepared for the early CNY in 2020. As weather became colder in Nov in China, management noticed pickup in sales growth, they are also confident that performance in Double 12 shall be better vs Single Day And to tackle the early CNY in 2020 (by ~10 days vs 2019), Bosideng had organized 300+ training sessions for its sales team in 1H20, for 20,000+ times in total. Also, retail GP margin in 2H20E should continue to trend up, thanks to price mix and improved retail discounts.
- Room for further ASP hike remains since high-end items are more popular. Branding upgrade was successful, in our view, as growth in 1H20 was driven more by increases in ASP (better than guidance of 15-20% YoY) than volume. We now expect sales mix from mid-high end items to be 40% in FY20E (vs 25% in FY19 and 5% in FY18). Such a trend shall continue as the Company targets to have 50%+ sales from this segment in the future.
- Maintain BUY and TP of HK$ 4.83. We fine-tuned our EPS in FY20E/ 21E/ 22E by 1.2%/ -0.1%/ 1.1%, and now expect 2H20E rev/NP to grow 33%/ 43%. Maintain BUY and TP of HK$ 4.83, based on same 26x FY21E P/E.
