Downgrade to HOLD and cut TP to HK$ 8.89, based on 10x FY6/21E P/E (from 13x FY6/20E as we foresee negative growth ahead). We think its risk-reward is unattractive, due to unfinalized virus impact and lack of catalysts.
- 1H20 sales and net profit inline but miss in dividend. JNBY’s sales/ net profit rose by 5%/ 13% YoY to RMB 2,135mn/ 430mn, similar to guidance of growth in single digit/ teens. However, absence of interim dividend is a negative surprise (historically ~40% of full year and ~3-4% yield at current price) and may indicate difficulties in cash flow. But management did reiterate their full year payout ratio of 75% in the post-result call.
- A broad-based slowdown due to warm winter, kidswear was the only bright spot. By brand, womenswear slowed down (5%/ 7% for JNBY/ less in 1H20 vs 11%/16% in 2H19), menswear are struggling (-6% in 1H20 for CROQUIS vs 1% in 2H19 and SAMO and REVERB to be closed, by FY20E). Kidswear growth was fast (16%/ 13% for jnby by JNBY/ Pomme de terre in 1H20 vs 6%/ 13% in 2H19) but some underperforming stores were closed. By channel, all major channels experienced slowdown (4%/ 3%/ 23% for self-owned/ wholesale/ online in 1H20E, vs 6%/ 8%/ 38% in 2H19).
- Measures to cope with the crisis: 1) preserve cash, 2) stand with distributors & employees and 3) further utilize e-channels. Management cited the virus outbreak as a negative surprise that should hurt the consumer sector substantially. The Company believed they are in a better position to withstand this challenge because they have: 1) rich net cash position (~RMB 740mn and not to pay interim dividend), 2) purchased sufficient medical insurances for its employees, 3) rolled out relaxation policies to help their distributors (such as raising the return rate temporarily to 100% for their 1Q20 season products, and 4) utilized their manifold channels to drive sales growth during this period (e.g. Wechat’s mini-programs or JNBY Box projects or fan based promotions). We believe some short term pain may be created but should help preserving its brand equity.
- No clear guidance from mgmt.; Cut FY20E sale/net profit by 16%/41%. Management believed it is too early to give any definite guidance, since the virus is not fully under control yet. However, if we assume heavy impact on sales to last for roughly two months (weak direct retail sale and higher provisions for unsold items from distributors in Feb-Mar 2020), overall sale for FY20E should be revised down by 16%. Also, after taking into account of the fixed costs (as most of opex are fixed), its FY20E net profit should be trimmed by 41%. We expect FY20-22E consensus EPS to have similar cuts.
- Downgrade to HOLD and trim TP to HK$ 8.89. We downgrade JNBY to HOLD and cut TP to HK$ 8.89, based on 10x FY21E P/E (from 13x FY20E P/E due to negative growth ahead). We do not find the counter attractive due to lack of short term catalysts, despite valued at 9x FY21E P/E and 7% yield.
