Main points of investment:
Core ideas: 1) the company is a world-renowned baby products company with multi-category, multi-brand and global layout; 2) the baby consumer market will be driven by consumption upgrading, and the promotion of China's safety seat regulations and policies will significantly drive the industry; 3) 2019 will improve in terms of management, integration and TRU impact.
Well-known baby products company, multi-category, multi-brand, global layout. The company is a world-renowned children's products company, 1) comprehensive and broad brand coverage: goodbaby (good boy), cybex and evenflo and other well-known brands; 2) comprehensive categories of baby products: carts, safety seats and other durable goods, as well as baby clothing, infant care and other non-durable goods, as well as retail network business 3) Global layout: gb good Boy is a well-known brand in China, cybex was born in Europe, and evenflo is mainly sold in North America.
Baby consumer goods market: driven by consumption upgrading, policies and regulations, etc. China's market for trolleys and car safety seats has maintained rapid growth, with the market space reaching 124 yuan and 4.3 billion yuan respectively in 2017. We believe that the domestic market is mainly driven by: 1) consumption upgrading. According to the analysis of Tmall's annual consumption data in 2018, the proportion of sales of four-wheeled trolleys and safety seats has increased significantly in the price range of 601-1500 yuan. substitute part of the market below 600 yuan; 2) Safety seat policy: Europe, the United States and other developed countries have relatively strict safety seat policy and enforcement, with a utilization rate of more than 90%. The utilization rate in China is still relatively low (16% from north to Shenzhen), and we believe that if the policy is stricter in the future, it will drive the domestic automobile safety seat industry.
The fundamentals of 2019 are expected to improve in many ways: 1) gb China management, in early November 2018, Ms. Jiang Rongfen was promoted to CEO in charge of gb brand products in China, which we think will hopefully reverse the weakness of gb durable goods business; 2) M & An integration is smoother: after more than a year of integration, we expect gb China business to be smoother in 2019. 3) the impact of TRU is expected to ease in 2019: TRU (Toys R us) closed its business in the United States in March 2018, and its liquidation enabled the company to make provision for some accounts receivable in the first half of 2018, affecting sales in the United States. In 2019, we believe that through new customer development and channel construction, the impact is expected to be gradually alleviated. In the medium and long term, 2C brand building, accelerated sales of cybex in China, and domestic safety seat policy are expected to bring drive.
Profit forecast and investment advice. We estimate that the company's net profit from 2018 to 2020 will be HK $2.27,3.08 and HK $386 million, up 26.3%, 35.8% and 25.5% year-on-year, respectively, and the corresponding EPS will be HK $0.14,0.18 and HK $0.23 respectively. 2019 17-19 times PE, corresponding to the reasonable value range of 3.06-3.42 Hong Kong dollars per share (according to 1 Hong Kong dollar = 0.86 yuan, the corresponding reasonable value range 2.63-2.94 yuan per share). It is covered for the first time and is rated better than the big city.
Risk hint. The risk of macroeconomic downturn; the integration of management is not as expected; Cybex's development of the Chinese market is not as expected.