The recovery of the main business of women's shoes, the high growth of digital marketing, the first coverage given a "buy" rating of 2012-2016, the women's shoes industry entered a period of deep adjustment, the company, as one of the leading enterprises, took the lead in 2017, profitability and operational efficiency to maintain industry leadership. With the omni-channel adjustment in place, we expect women's shoes performance to return to growth in 2020. Another main business, digital marketing, has a good reputation in the industry and has accumulated a large number of high-quality customer resources, including BAT. Revenue in the first three quarters of 2019 increased by 29.6% compared with the same period last year, and business efficiency and quality increased steadily. We expect the company's EPS to be 0.58 yuan / 0.64 yuan / 0.71 yuan in 2019-2021, giving a "buy" rating for the first time.
Favored by the fund of the former chief scientist of Aliyun, the future retail of women's shoes has been upgraded in many aspects: 1) based on women's different life experiences and value orientations, create a fashionable women's shoes matrix, and actively expand new categories horizontally. 2) Channel adjustment, closure of inefficient stores, layout of high-quality flow channels, and improve online flow and conversion efficiency through data exchange, logistics optimization and lean operation; 3) complete the omni-directional upgrade of the supply chain through commodity centralization, R & D digitization and production intelligence, with a production and sales rate of more than 90%. In March 2020, Beifeng Capital, the chief scientist fund of Aliyun, was introduced into the company, and the company is expected to make use of its experience in digital transformation and data intelligence technology to promote further transformation and upgrading of various links and tap the growth value of the footwear business.
The operation quality of Kid Technology (digital marketing) has improved steadily, and it is expected that the performance commitment of the subsidiary will be consolidated in December 2017. it is promised that the contribution deduction of non-return net profit in 2017 / 2018 / 2019 will not be less than 65 million yuan / 85 million yuan / 110 million yuan respectively. With the accumulation of advertisers and media resources, the traditional mobile application distribution and programmed advertising business has maintained rapid growth, and the new business has expanded benchmark customers such as Alipay and Jinri Toutiao. Based on the performance in the first three quarters of 2019, we expect the completion rate of Kid Technology's performance commitment to be between 112.6% and 117.3% in 2019.
Keep ahead of the industry in profitability and operational efficiency
There is still a certain gap between the scale of the company's footwear business and the leading industries such as Daphne International, but the gap is gradually narrowing. With its excellent comprehensive operating capacity, the company remains ahead of the industry in profitability, with a net interest rate of 11.5% in the first three quarters of 2019, 5.9% in 3.2 PCT on Saturdays with similar business size, and 5.9% in 3.2pct on Saturdays. In addition, the company's accounts receivable and inventory turnover efficiency is also steadily improving, ranking in the forefront of the industry.
Dual business has both defense and growth. Comprehensive evaluation of footwear, clothing and other businesses through segment valuation method: we expect to make full channel adjustment in 2020, and expect to achieve a net profit of 133 million yuan in that year. With reference to the average PE valuation of 27.1 times the comparable company, it will be given 26.1 billion 28.1x PE, with a total market capitalization of 3.47 billion 3.73 billion yuan. Digital marketing business: mobile application distribution and programmed digital delivery business are developing rapidly. We expect to achieve a net profit of 141 million yuan in 2020. With reference to the average PE valuation of 22.8 times of the comparable company, we give it 21.0 to 23.5x PE, with a total market capitalization of 2.98 billion to 3.33 billion yuan. To sum up, we give a target price of 14.93 to 16.37 yuan, corresponding to an EPS price-to-earnings ratio of 23.5 to 25.7x for 2020E, giving a "buy" rating for the first time.
Risk hints: the impact of the epidemic exceeded expectations, channel optimization was less than expected, competition in the women's shoes market intensified, media restrictions on the opening of high-quality resources.