Company trends
The current situation of the company
Company 1QFY23 (April-June 2022) Kappa brand (excluding Kappa children's wear) retail flow fell 10-20% year-on-year, same-store sales fell 10-20% year-on-year. As of the end of June, there were 1130 Kappa-branded stores (excluding Kappa children's wear).
Comment
The epidemic situation has a negative impact on the sales of 1QFY23 terminals. The repeated 2Q22 epidemic in many places in China has a negative impact on terminal retail. The retail flow of the Kappa brand (excluding Kappa children's wear) has declined by 10-20% compared with the same period last year. On the one hand, the epidemic affected offline passenger flow and residents' willingness to spend, resulting in a 10-20% year-on-year decline in same-store sales of the Kappa brand (excluding Kappa children's wear); on the other hand, it led to the suspension of business in some stores, especially on shopping mall channels. With the improvement of the epidemic situation, the company's terminal sales gradually recovered, and in June it returned to the level of the same period last year. By the end of June, there were 1130 Kappa-branded stores (excluding Kappa children's wear), compared with 53 at the end of March.
Online sales are still under some pressure. According to magic mirror market intelligence, April-June Amoy platform (Taobao + Tmall) Kappa brand sports shoes and clothing sales fell 9% compared with the same period last year, 42% and 38% respectively, online sales face some pressure. During the online promotion period, Kappa brand online platform-wide retail sales fell by about 30% compared with the same period last year, mainly due to the weak sales performance of the company's Tmall platform. The company also expanded Douyin platform e-commerce business and achieved good growth performance. The management said that they will continue to optimize Tmall platform stores, create new products such as sports trends, re-communicate with consumers and promote consumers to break the circle; at the same time, develop content e-commerce platforms such as Douyin and Little Red Book to find product hotspots.
Product reform continues. The company focuses on the sports fashion market, FY23 products mainly promote retro fashion, "Italy", "football", "1916" series products get better feedback. At the same time, launch "Kappa X cherry balls", "Kappa X Britto" and other joint series of products, and strive to improve brand strength and product strength. The management said that in the future, it will continue to strengthen product quality and product culture to enhance brand strength.
Profit forecast and valuation
Maintain the company's FY23/24 annual EPS forecast of 0.03max 0.08 yuan unchanged, the current share price corresponds to 11 FY23e/24e price-to-earnings ratio of 5 times, maintain outperform industry rating. Maintain the apparel business valuation of 8 times FY23P/E and give the company's multi-business model a 71% valuation discount. Taken together, we maintain a target price of HK $0.53 based on segment plus total valuation, with 30% upside room.
Risk.
The epidemic continues repeatedly, the terminal retail environment is not as expected, the reform is not as expected, and the investment income fluctuates.