The excellent 1H21 results beat our already bullish estimates. Despite relatively prudent guidance, we are still confident on a strong 2H21E with sales/ net profit to grow by 26%/ 39%. Driven by: 1) meaningful GP margin expansion, 2) low channel inventories and strong re-orders, 3) operating leverage and effective cost savings and 4) low base (~10% annual sales missing in Feb-Mar 2020). The stock is attractive given its 19x FY3/22E P/E (vs GOOS’s 29x and MONC’s 34x) and 1.0x 3-years PEG. Reiterate BUY and raised TP to HK$4.23 (23x FY22E P/E).
- An all-round beat in 1H21. Bosideng’s sales/ net profit rose by 5%/ 42% YoY in 1H21, beating CMBI’s est. by 7%/ 24% and BBG’s est. by 10%/ 33%, mainly due to: 1) 144% self-operated and 86% online down apparel sales growth, 2) 4.8ppt increases in GP margin, 3) operating leverage from A&P savings and strong SSSG and 4) better than expected OEM business. As at 1H21, inventory days rose to 200 days (vs 172 days in 1H20), but finished goods was down by 15% to RMB 1.9bn (vs RMB 2.3bn in FY20). Receivable days increased to 98 days (vs 86 days in 1H20) due to more support and extended credit period for distributors. Payable days jumped to 188 days (vs 110 days in 1H20), thanks to more supply chain financing.
- Guidance raised but seems unaggressive. Following the strong beat in 1H21, management raised FY21E guidance to 30% self-operated sales growth (vs prev. 20%) and GP margin expansions (vs prev. stable). Store counts in FY21E-23E will stay stable, as future focus is productivity growth.
- But we are more bullish on 2H21E. Despite a 95% chance of Li Nina (by NOAA), the weather forecast is still uncertain. Despite the rather prudent management guidance, we are convinced to be more bullish on 2H21E, due to: 1) low base in 2H20, absence of sales in Feb-Mar 2020, 2) robust re-orders as distributor retail sales growth was strong in 1H21 (not as fast as 144% YoY self-owned growth, but still fast), 3) boost in GP margin as old products’ sell-through rate reached 50% (on track to achieve 70%+ target in FY21E without more discounting) and ASP was increasing so far in Oct-Nov 2020 due to stronger consumer’s end demand to high-end products.
- Maintain BUY and raised TP to HK$ 4.23. We revised up our diluted EPS in FY21E/ 22E/ 23E by 6.1%%/ 4.7%/ 9.6% to factor in stronger self-owned and online sales, significant GP margin surge, better-than-expected OEM businesses and effective opex savings. We therefore reiterate BUY with higher TP of HK$ 4.23, based on 23x FY22E P/E (unchanged). Bosideng’s valuation of 19x FY22E P/E with a 22% NP CAGR during FY20E-23E is highly attractive, compared to GOOSE’s 29x and 19% and MONC’s 34x.
