Virgin is an innovative design as the unique positioning of the IDM underwear contract manufacturing leader, has accumulated a profound technology moat. The top five customers are Victoria's Secret, Uniqlo, UA, Nike and PVH. Its deep process barriers and three core technologies achieve the compound interest effect of category expansion, and its product line extends from traditional underwear to sports bust, sports and consumer electronics accessories. Since listing, revenue has grown much faster than the industry (about 1.5 per cent), including 8.7 per cent of lingerie CAGR and 45.2 per cent of sporting goods CAGR.
With the core technology as the "sharp edge", Virgin shows her strength in category expansion and potential customer development. 1) Ubras, Internal and external, Banana and other new consumer brands have emerged, and sports brands such as Nike, Lululemon, Li Ning Co. Ltd., Anta and other sports brands have accelerated the layout of women's fitness track, and the growth rate of the above categories is very fast. Jenny Virgin demonstrated her strength in the above customer expansion. 2) in terms of category expansion, breakthroughs have been made in sports bra, leggings products and consumer electronic accessories. It is expected that these three categories will grow by about 27% in the next two years, and the proportion of revenue will further increase to 40%.
In the short and medium term, the receipt in Vietnam and the operation of Victoria's Secret in China are better than market expectations. 1) the receipt of orders in Europe and the United States is good, the manufacturing industry in Vietnam is recovering, the recruitment of workers in the north of Vietnam is ideal, and both supply and demand are booming. 2) after the establishment of JV with Victoria's Secret, we have cooperated with the popular style "double-foot-size jelly strip vest" and launched leggings products in cooperation with international well-known sports brands.
In the medium and long term, the company has entered a triple harvest period of optimization of customer structure, category expansion and full play of overseas production capacity. Sports brands, new domestic consumer brands, sports underwear and tights, consumer electronics accessories and other new categories will become the driving force for growth, and the customer structure will become more robust. The improvement of capacity utilization in Vietnam and the relocation of the mainland base will support the company's order growth in the next 3-5 years.
Based on its increasingly sound operating nature, the target valuation is 17x and the target price is HK $8.24, with a buy rating.
Under DCF estimates (wacc is 8.62 per cent and sustainable growth is 1 per cent), Virgin's target share price is HK $8.24, which is 63 per cent higher than the closing price on June 10, corresponding to a FY2023 PE of 17x. After sensitivity analysis, the target price range is HK $6. 0-HK $10. 7, and the corresponding FY2023 PE range is 12x~24x.
According to the profit forecast, the revenue of FY22-FY24 is expected to be HK $10.54 billion; YoY is + 40.0 pm; YoY is 12.4%; net profit is HK $7.1 million, YoY + 310.1; and 19.6%.
Risk tips: customer relationship maintenance, raw material price fluctuations, repeated epidemic situation, labor risk, trade environment risk.