Company profile:
Jiayi Holdings, formerly known as Jiayi Trading Company, founded in Hong Kong in 1993, is an one-stop solution provider for bridesmaid dresses, wedding dresses and special occasion clothes. Most of the company's revenue comes from companion skirts, which accounted for about 79.3%, 77.3% and 62.3% of bridesmaid skirts in the years ended March 31, 2016, 2017 and 2018, respectively. In terms of 2017 revenue, the company is the largest bridesmaid skirt maker in China, with a market share of about 2.9%.
The company's products are mainly sold to the United States, Europe, Australia and other places, of which the market revenue from the United States accounts for about 80-90% of the company's total revenue.
Sino-Thai point of view:
With fierce competition in the market, long-term cooperation with fashion brands may be key: according to Ipsos, there were about 6000 Chinese manufacturers of wedding dresses, bridesmaid dresses or special occasion clothes in 2017, of which the top five participants accounted for only 5.8 per cent of the bridesmaid dress market. The industry is very fragmented and the quality of products and services is uneven. Because of the high cost of switching manufacturers, brand owners tend to establish long-term relationships with their manufacturers. Quality assurance and stable business relationship may become the key to the development of the company. In addition, US bridesmaid dress and wedding dress sales increased from $1.4 billion and $2.43 billion in 2012 to $1.53 billion and $2.87 billion in 2017, with compound annual growth rates of 1.7 per cent and 3.3 per cent, respectively. Retail sales of US special occasion clothes increased to $11.46 billion from $10.51 billion in 2012, with a compound annual growth rate of about 1.7 per cent and is expected to grow by 1.8 per cent in the future. In contrast, the market for special venue suits is more attractive, and the company's strategy is to allocate more limited production capacity and resources to special occasions, which usually have lower average prices and shorter delivery times. The company's share of special occasion service revenue increased from 10% in 2016 to 33.2% in 2018, and is expected to continue to expand market share.
In terms of operating performance: the total income of Jiayi Holdings in fiscal year 2016, fiscal year 2017 and fiscal year 2018 was HK $165 million, HK $169 million and HK $208 million respectively, and its gross profit was HK $43.365 million, HK $48.708 million and HK $57.995 million respectively. The gross profit margin was 26.2%, 28.8% and 27.8%, respectively, and the net profit margin over the past three years was 7.32%, 14.08% and 11.43%, respectively. Most of the company's customers are fashion brands, and more than 95% of the revenue in the track record period comes from fashion brands. For the years ended March 31, 2016, 2017 and 2018 and the six months ended September 30, 2018, the company's income from its five major customers accounted for approximately 83.7%, 79.6%, 86.3% and 93.4% of the total revenue, respectively. In terms of cost structure, the company's raw material costs, subcontracting costs and labor costs accounted for 41.2% of the total cost in 2018, respectively. Among them, labor costs are growing rapidly, the company is a labor-intensive industry, and the supply of skilled workers in the market is limited. According to the Ipsos report, the average annual compound growth rate of wages of Chinese workers engaged in clothing manufacturing industry in the past five years is 10.7%. In addition, the company has high capital leverage, showing an asset-liability ratio of about 66.9% in fiscal year 2018.
In terms of valuation: based on 520 million shares after the global public offering, the market capitalization of the corresponding company is HK $5.09-655 million, which is lower than that of its Hong Kong counterparts; the corresponding price-to-earnings ratio is about 21.4-27.5 times, which is higher than the industry average; and the price-to-book ratio is about 4.26-4.50 times. Higher than the industry average. In terms of profitability, the ROE and ROA of 17 years were 20.4% and 59.5% respectively, higher than the industry average. Considering the company's industry status, performance and valuation, we give it a score of 64, with a rating of "neutral".
Risk hints: (1) cost rising risk (2) market competition risk (3) foreign exchange fluctuation risk