Ziwu is leading the wave of overseas sellers in China, and covering “buy” ratings for the first time, Zibo has grown into one of China's largest cross-border e-commerce export companies. Looking at the 2021 GMV, according to Frost & Sullivan, Zibu Yu ranked first in the North American market and third in the global market among all sellers selling clothing and shoes overseas in China. Amazon, in particular, has established a remarkable leadership position. Judging from the GMV generated by the Amazon platform, Zi unequivocally ranked second among Chinese apparel and footwear sellers in 2021. We expect the company to continue to launch best-selling products and achieve relatively rapid performance growth. It is estimated that the net profit returned to the mother in 2023-2025 will reach 2.3, 330, and 40 billion yuan. Referring to the comparable company Wind, they unanimously expect 16.7xPE in 2023. Considering that the size of the company is relatively small compared to comparable companies and that the scale effect is not significant, the company was given 13.0xPE in 2023, corresponding to the target price of 6.94 Hong Kong dollars (the exchange rate of Hong Kong dollar to RMB 0.88:1) for the first time coverage was given.

China's cross-border e-commerce has entered a golden era of development

According to Frost & Sullivan, China's cross-border B2C e-commerce exports reached 2,7384 billion yuan GMV in 2021, and CAGR is expected to reach 15.0% in 2021-2026. Third-party platforms are the main channel for Chinese sellers to go overseas. Third-party platform sellers achieved a GMV of 2,040.1 billion yuan in 2021, accounting for 74.5% of omnichannel GMV. Clothing and footwear are the core category sold overseas by Chinese sellers. Sales of clothing and footwear reached 75.3 billion yuan in 2021, and CAGR is expected to reach 19.5% in 2021-2026.

Deeply involved in the Amazon ecosystem to build a “flywheel” model for popular products According to the prospectus, as of September 19, 2022, a total of 1,061 clothing and footwear products were on Amazon's top 100 best-selling products list, and the life cycle of some of the best-selling products was as long as 4 years. We believe that Zi is capable of continuously creating best-selling products. Considering its: 1) excellent design, the design team has rich digital operation and industry experience; 2) efficient supply chain management based on ERP and SCM systems, and long-term stable cooperation with OEMs, warehousing, and logistics service providers to achieve rapid production and fulfillment and achieve rapid inventory turnover; 3) strong brand operation capabilities. As of June 30, 2022, Zibu has 87 brands with annual sales exceeding 10 million yuan; and 4) strong e-commerce operations.

The Amazon channel is expected to continue to grow rapidly, covering purchase ratings for the first time. We expect the company to achieve revenue of 388, 467, and 5.41 billion yuan in 2023-2025, and net profit of 2.3, 330, and 42 billion yuan. The rapid increase in profit in 23 is expected to be mainly due to: 1) the continued rapid growth of the Amazon channel; 2) improvements in shipping costs; and 3) optimization of sales expenses and management expenses.

Referring to comparable companies, they unanimously anticipated 16.7xPE in 2023. Considering that the size of the company is relatively small and the scale effect is not significant, the company was given 13.0xPE in 2023, corresponding to the target price of HK$6.94 (HKD/RMB 0.88:1 at the exchange rate of the Hong Kong dollar to RMB 0.88:1), and was given a purchase rating for the first time.

Risk warning: Market competition intensifies, overseas traffic costs increase, independent site cultivation falls short of expectations, and risk of inventory impairment.