Investment points:
The company is a domestic high-end children's clothing brand operator, and the pyramid brand matrix continues to gain strength. 1) Deeply involved in the children's clothing industry for 30 years, the brand matrix is growing day by day. In the early days of its establishment, the local children's clothing brand Water Kids was founded. In 2005, it expanded its retail agency business for international luxury brands, children's clothing, etc., and successively operated brands such as Kenzo, Armani, and Boss. In 2013/2015, it was authorized to operate a brand system structured by its own brands, authorized brands, and international retail agent brands. It has now formed a brand system structured by its own brands, authorized brands, and international retail agent brands, which respectively position the mid-range, high-end and high-end children's clothing markets, forming a pyramid brand matrix. 2) High-end card slots, with both growth potential and profitability. The company's various brands continued to gain strength. In 2014-2019, revenue/net profit CAGR reached 23%/14%. After applying the new accounting standards, 2021/22Q1-3 revenue increased 16% /down 2.7% year on year, and return net profit increased 64% /fell 8.1% year on year. The high-end positioning determines that the company's gross margin is at a high level in the industry. 2021/22Q1-3 comprehensive gross margin was 59%/60%. Strong brand potential is expected to drive a further increase in gross margin.
The growth of the domestic children's clothing industry is comparable to sportswear, and the share of the middle and high-end is increasing year by year. Policies to encourage childbearing are expected to catalyze demand.
China's children's clothing industry started late and is still in the development period. According to Euromonitor estimates, the industry size CAGR is expected to reach 8% in the next 5 years, second only to domestic sportswear. With the increase in disposable income of Chinese residents and the increase in spending on children's clothing per capita, the scale of the middle and high-end children's clothing industry is growing even faster, and its share is increasing year by year. The total child population in China reached 250 million in 2021. Since 2017, the domestic birth rate has gradually declined and dropped to 6.8% in 2022, but population balance has developed into an important national development strategy. Since 2015, policies to encourage childbearing have been introduced one after another, and the two and three child policies have been liberalized. Recently, many cities have taken the lead in issuing comments to encourage and support childbearing. It is expected that the continued implementation of relevant policies in the future will catalyze the medium- to long-term increase in demand for children's clothing.
The pyramid brand matrix is multi-polar, has outstanding e-commerce channel advantages, and supports core competitiveness. The company's brand positioning and style are clearly differentiated, covering the needs of middle and high-end children's clothing. The basic market of its own brand, Water Kids, is stable, the two major authorized brands have high growth, and international agency brands are accurately positioned in the high-end market. In the brand matrix, Huckley and Haggis were the latest to be introduced, but their brand strength is strong. Along with the strength of e-commerce channels, the total revenue growth rate in 2019-2021 was as high as 35%/22%/25%, accounting for 56.5%/59%/64% of total revenue. The company attaches importance to the development of e-commerce channels. In 2019-2021, e-commerce revenue accounted for 53%/62%/65%, far higher than comparable companies in the industry, and fully enjoyed the traffic dividends of e-commerce channels.
Jiaman Apparel is a rising star of high-end domestic children's clothing brands. It has built a pyramid brand matrix to form strong complementarity. Leisure and Haggis children's clothing are growing rapidly, and e-commerce accounts for the leading share in the industry. For the first time, it has been covered and given a “buy” rating. The growth of the domestic children's clothing industry is comparable to sports, and high-end children's clothing is superior. As one of the few middle and high-end children's clothing brand groups in China, the company has built a pyramid brand matrix with a mid-range, middle and high-end layout to drive performance growth, channel layout foresight, and seize the dividends of e-commerce channel growth. It is expected to achieve net profit of 1.3/20/260 million yuan in 22-24, a year-on-year decline of 34.9% /an increase of 61.4% /an increase of 26.4%, and the corresponding PE is 21/13/10 times. Referring to the average PE of comparable companies, the company was given 20 times the PE valuation in 23 years, with a target market value of 4.1 billion yuan. There is room for an increase of 53% from the current market value. It was covered for the first time, and a “buy” rating was given.
Risk warning: birth rate continues to decline; industry competition intensifies; online traffic dividends decline; brand licensing model risks.
