We are confident for Bosideng to deliver a solid 1H21E result and continue to outperform in 2H21E, thanks to: 1) favorable weather, 2) excellent price-to-quality products and 3) meaningful cost savings and operating leverage. The counter is attractive given its 19x FY3/22E P/E (vs GOOS’s 29x and MONC’s 31x) and 1.3x 3-years PEG. Reiterate BUY and raise TP to HK$ 4.04.
- Expecting a solid net profit growth in 1H20E. We expect 2% YoY sales decline and 14% YoY NP att. growth in 1H21E (vs 12% sales/ 18% NP att. growth in 2H20). Sales growth by segment will be: 1) 43%/ 2% for self-owned/ wholesale down apparel, 2) 18% decrease for OEM and 3) 14% drop for womenswear. We expect GP margin to be flattish at 43.7%, as greater online and self-owned mix offset by higher retail discounts and lower OEM GP margin. But NP margin will lift to 9.0%, thanks to rental and A&P savings.
- Remarkable retail sales growth since Oct 2020, thanks to: 1) favorable weather, 2) outstanding price to quality and 3) growth momentum after store revamp. According to mgmt., offline/ online retail sales growth recorded 100%+/ 200%+ YoY during 1-8 Oct and remained fast at 100% YoY for both offline/ online on 9-26 Oct, which is better than their expectations. We believe growth drivers were: 1) earlier and colder winter (average temperature for BJ/ SH/ SZ were ~0.5/ 1.3/ 1.5 degrees colder than last year), 2) with limited increase in ASP, products are now more value for money and 3) over 2,000 store were either newly opened or remodeled in last 12 months. These more appealing stores are generating better SSSG.
- Grant of share options to an independent consultant. 100mn shares options, with strike price of HK$ 3.41 were granted to Wise Triumph Group with 48 months vesting period, accounting for ~0.92% of enlarged capital. Wise Trumph is the consultant for the rebranding campaign since 2017. Mgmt. stated that they co-developed the 10-year expansion plan (Phase 1: Rebranding, Phase 2: Professional positioning, Phase 3 Global expansion).
- Buying a logistic park for RMB 559mn. Bosideng proposed to pay RMB 559mn to its parent for an advanced logistic park located in Changshu, with a total area/ GFA of 221K/ 192K sq.m. Mgmt. believe the acquisition can save ~RMB 50mn rental fees per year and generate rental incomes.
- Maintain BUY and raise TP to HK$ 4.04. We fine-tuned our EPS in FY21E/ 22E/ 223E by +4.8%%/ +0.7%/ -3.4% to factor in stronger sales in Oct 2020, a relatively weak wholesale sales, option shares dilution and acquisition of logistic park. We remain positive and therefore reiterate BUY with a new TP of HK$ 4.04, based on a 23x FY22E P/E (rolled over from 21x FY21E P/E), implying a 1.3x PEG (H shares peers avg. of 1.6x).
