Maintain BUY and raise TP to HK$ 15.32, based on 13x FY6/22E (rolled over from 10x FY6/21E P/E) after revising up FY21-22E EPS by 13-17% for faster sales growth with operating leverage. With an ambitious new growth target (RMB 10bn retail sales by FY23E-24E), JNBY’s valuation is undemanding at 11x FY6/22E P/E (vs its 3 years average of 10x) and 8% FY22E dividend yield. We think its risk-reward is fascinating.
- 1H21E net profit beat by 24%. 1H21E sales/ net profit grew by 8%/ 8% YoY, beating BBG est. by 2%/ 24%. We attributed this beat to: 1) robust SSSG of 12.6% (vs HSD negative in 2H20) and its subsequent operating leverage and 2) rigid cost control (admin costs fell by 3% YoY) despite 0.9ppt YoY reduction in GP margin to 61.6% (stable for JNBY but falling for other younger and emerging brands). Both inventory days (172 in 1H21 vs 201 in 1H20) and operating cash flow (+70% YoY) had strongly improved.
- An upbeat FY21E guidance. Management expects a HSD sales growth (vs FY19) and a similar net profit level (vs FY19), which is far ahead of their previous target (HSD sales and 20%+ net profit growth vs FY20). We are confident that they can achieve it, because of: 1) favorable weather in Jan- Feb 2020 and the low base, 2) image upgrades for 200-300 stores (70 stores were done in 1H21E and the boost in productivity was encouraging), 3) all channel strategy (more digital sales thru Wechat mini-program, more digital marketing on Bilibili, Xiaohongshu, Tik Tok, etc.) and 4) better CRM, a new department was set up to boost overall customer experience and promote better interactions with members and fans. Organizing events in its new headquarters (Tian Mu Li/天目里) in the future is also possible.
- An ambitious game plan for next 3-4 years. The Company introduced a stunning long-term retail sales target to reach RMB 10bn in 3-4 years by FY23E-24E, doubling the figure in FY20 and implying an 18% CAGR (vs our est. of RMB 8.6bn, 14% CAGR). In order to achieve that, management expects to increase investments in branding. Therefore, A&P expenses may be raised to 7% of annual sales onwards (vs 4.6% in FY20) and more talents in design, display, marketing and innovations will also be acquired.
- Maintain BUY and raise TP to HK$ 15.32. We maintain BUY and raised TP to HK$ 15.32, based on 13x FY6/22E P/E (rolled over from 10x FY21E P/E). We revised up FY21E/ 22E EPS by 13%/ 17%, to factor in: 1) robust SSSG, 2) faster store openings and 3) ambitious long-term guidance. Highly attractive given a 11x FY6/22E P/E and 8% FY6/22E yield.
