Even though Bosideng did not provide any guidance for FY21E, we believe it can still sell well with 11%/20% revenue/NP YoY, due to: 1) refocus of quality products priced at RMB 1,000-1,500, 2) solid digital pushes and 3) greater efforts to boost efficiency. The counter is attractive given its 17x FY3/21E P/E (vs GOOS’s 20x and MONC’s 27x) and 1.0x 3-years PEG. Reiterate BUY and TP of HK$ 4.83.
- A resilient FY20 result, 4% above consensus. FY20 sales/ NP att. rose by 17%/ 23% YoY to RMB 12.2bn/ 1.2bn, 3% below/ 4% above BBG est., thanks to beat in GP margin (as both Bosideng brand and OEM sold more high-end items). Taking into account of: 1) loss of 10% annual sales during 1Q20, 2) impairment loss of RMB 98mn for ladies wear and 3) doubtful debt provision of RMB 82mn, we believe the FY20 result is reasonably solid.
- Inventory level (both brand and channel) is not alarming, in our view. Bosideng’s inventory days went up by 29 days to 155 days in FY20 (24 days was due to pandemic), but we are not worried as it is still low comparing to its peers (industry avg. is at 222 days) and the increase is similar (industry up 20 days YoY on average). Without doubts, we think channel inventory also increased, and the Company actively responded by cutting the compulsory part of trade fair orders to just 30% (from 40% last year).
- Remain cautiously optimistic on FY21E, thanks to: 1) low base, 2) robust e-commerce and 3) efficiency gain per offline store. We believe a 19% YoY down apparel growth in FY21E is totally achievable (14% YoY offline and 35% YoY online). Offline sales growth per store (CMBI est.+11%) are driven by store renovation (70%+ of stores upgraded in past 2 years) and most importantly, efficiency gain is now the group’s primary focus in FY21E. E-commerce only contributed 24% of down sales in FY20 (vs. mgmt. target of 33% in long run) and growth can remain fast by rolling out more inventory sharing, live streaming, cloud stores, off-store sales via WeChat, and more events-linked promotions. Noted that only 4 brands achieved 100% growth in Tmall at 618 festival, where Bosideng was the only domestic brand.
- Maintain BUY and trim TP to HK$ 3.26. We cut our EPS in FY21E/ 22E by 17%/ 19% to factor in pandemic impact, future orders cut in OEM, weaker womenswear business but better down apparel GP margin. We stay positive on long-term fundamentals and expect a 18% NP CAGR in FY20-23E. Therefore we maintain BUY with new TP HK$ 3.26, based on a 21x FY21E P/E (lowered from 26x), implying a 1.2x PEG (H shares peers avg. of 1.5x).
