Why do we recommend Smith Barney now?
1. Bottom recovery logic: in the three years since 2016, the company has completed brand-product upgrade, channel upgrade and retail upgrade, which has undergone a large marginal improvement, and has become an upward inflection point in revenue in 2018.
2. It is expected to become the inflection point of net profit in 2019: with the vigorous development of franchise channels, the cost of stores is significantly reduced, the operating efficiency is improved, the loss of inventory impairment is reduced, and the net interest rate is expected to rise to 5%. According to the performance forecast, only 0.56% in 2018; we believe that the company's performance has passed, and the net interest rate is expected to return to about 10% within 3 years.
3. There is a big difference in the expectation of Li Ning Co. Ltd. and Bosideng International. Similar to Li Ning Co. Ltd. and Bosideng International, Meibang used to be the leader of the subdivision industry, which fell to a low ebb due to strategic mistakes, but its brand value is still there. In recent years, its performance has been restored and recognized through its own reform. In the process of bottom recovery, there is a big difference in expectations at the inflection point, which is reflected in the large space in terms of stock price. We believe that the present time is the performance inflection point of Smith Barney.
Review: 20 years of ups and downs of Smith Barney clothing (1995-2015)
From 1995 to 2005: during the period of brand establishment, the advantage of light asset virtual operation was remarkable, and the company developed rapidly and grew into a leading domestic casual wear enterprise.
2006-2011: reached the peak after listing in 2008, but the crisis was hidden; by the end of 2011, the market capitalization of Smith Barney reached 26.1 billion yuan, making it the largest market capitalization company in the brand clothing sector.
2012-2015: eager for transformation, falling short of expectations; focus shifted, the company entered a period of adjustment.
Reform: from 2016 to 2018, Smith Barney returned to focus on the main business, upgraded from brands-products, channels, retail, supply chain and other aspects in three years, and ushered in a revenue inflection point in 2018.
Brand & product upgrade: diversification. 1) Meters/bonwe upgrades and fission five major styles, which will be dynamically adjusted according to market demand in the future. 2) Brand matrix carding: concentrate resources on developing high potential brand businesses such as ME&CITY, Moomoo, ME&CITY KIDS, etc.
Channel upgrade: "Shopping Mall" + "hundred cities and thousands of shops". That is to say, we should first open more stores in directly operated shopping centers, establish image standards, enhance their attractiveness to franchisees, and then promote them on a large scale.
Retail upgrade: standardization of store management, completion of single store model testing, iterative joining policy, introduction of similar direct operation mode management, and exploration of brand authorized light asset operation mode.
It is proposed to increase by 1.5 billion to promote product brand upgrading and supply chain upgrading and to repay bank loans.
Inflection point: 2019 is expected to be the inflection point of net profit in the first year, with the net interest rate rising to 5%. Later, with the release of the reform dividend, the net interest rate is expected to return to about 10% in 2-3 years. The reason: vigorously develop and join, the income increases, the sales expenses mainly based on store costs are significantly reduced, the operating efficiency is improved, the asset impairment losses such as inventory prices are reduced, and the management financial expenses are reduced.
Cover for the first time, give buy rating, target price 4.5 yuan. It is estimated that the net profit in 2018-20 will be 0.43 million yuan, and the EPS in 18-20 years will be 0.02, 0.18 and 0.27 yuan, respectively. The value of the leading brand of the company's casual wear is still there, and the net profit is in the period of recovery at the inflection point. 25x PE will be given in 2019, with a target price of 4.50 yuan.
Risk hint: the promotion of joining channels is lower than expected, the competition in the industry intensifies, and inventory and bad debts increase.
