We attributed 10% plunge in share price yesterday to potential market concerns, including: 1) unfavorable weather, 2) weak customer acceptance of retail price hike and 3) slow growth for 2019 double 11 festival. However, we believe these concerns are unjustified and the sell-off was overdone, hence posing a good chance to buy on dip. The counter is attractive given its 21x FY3/21E P/E (vs GOOS’s 24x and MONC’s 24x) and 1.0x 3 years PEG. Reiterate BUY.
- Will weather hinder Bosideng growth in FY3/20E? Not necessarily as the El Niño effect had just faded out. Brand competitiveness is more important. The 2019 winter is so far warmer vs last year in China, as the average temperature during Sep to 12 Nov 2019 were 15.1/ 21.1/ 26.7 degrees in Beijing/ Shanghai/ Shenzhen (vs 13.3/ 20.7/ 25.9 in 2018), and therefore we are not surprised to see a tougher industry performance (esp. for winter clothing). However, we still believe the weather could likely become more favorable (or at least not worsen), as we already had a warm winter back in 2018. According to NOAA, the El Niño effect is now gone for the Northern hemisphere (lasted from Sep 2018 to Jun 2019), and historically speaking, ENSO-neutral or La Niña are the more likely status, which means a relatively colder weather ahead. Bear in mind that Bosideng can still outperform amid an unfavorable weather like last year, where a 36% down apparel growth was achieved thanks to strong branding upgrade.
- How was the consumer acceptance on the retail price hike? Positive, as it is justifiable by strong volume growth. For the 2019 winter season, Bosideng planned to hike its ASP by 15-20%, in terms of selling more mid to high end priced items (RMB 1,800 or above). During the Double 11 Festival, Bosideng flagship store sales grew 58% YoY, driven by 30%+/ 20%+ increase in volume/ ASP. Such strong volume growth, even with 20% surged in ASP, indicated a strong consumer acceptance, where sales from mid to high end products grew by 140%+. According to our channel check, down wear by other brands (e.g. Nike/ Adidas/ Li Ning/ GXG) also raised their retail prices in 2019. Therefore, Bosideng’s ASP is still comparable to and not deviated much from others.
- 58%/ 37% sales growth in Tmall flagship store/ all channel for Bosideng brand during Double 11 festival is industry leading. Bosident’s Double 11 festival sales ranking on Tmall platform for menswear and womenswear advanced to No.5 and No.2 in 2019 (from No.7 and No.4 in 2018). Compared to growth of sportswear names like Anta (all brands) and Li Ning at 62% and 50%, we think Bosideng’s apparel growth at 58% YoY is already stunning.
- Maintain BUY with TP of HK$ 4.83. We expect 1H/2H19E NP to grow 22%/46% YoY. We maintain BUY with TP of HK$ 4.83, based on 26x FY21E P/E. We recommend to accumulate the stock on recent weakness.
