Domestic cross-border B2C e-commerce clothing and footwear export leader, and revenue performance increased rapidly in 19-21. The company was founded in 2011 and is a leading domestic cross-border B2C e-commerce apparel and footwear export company. According to Frost & Sullivan data, the company had the highest market share in the North American cross-border B2C e-commerce apparel and footwear category in China in '21, and ranked third globally. The founder of the company is Hua Bingru. The founder and co-actors hold a total of 52.2% of the company's shares. The shares are concentrated, the core executive team is stable, and the core employees received equity incentives before listing. The company's revenue in 2021 and net profit of its mother were 2.35 billion yuan and 200 million yuan respectively. The compound growth rates in 19-21 were 28.2% and 57.2% respectively. Revenue and performance continued to grow rapidly. Factors such as the increase in US inflation and interest rates on 22H1 affected terminal consumption, and rising freight and other costs affected profit margins. The growth rates of company revenue and net profit of the mother were 16.1% and -46.3% respectively.

Amazon is growing rapidly, and its share of sales in the US market is gradually increasing. In terms of categories, the company mainly deals in apparel and footwear. Clothing revenue is mainly driven by an increase in average price. The compound growth rate of sales and unit price in 19-21 was 4.2%/21.6% respectively. Shoe revenue was mainly driven by increased sales volume. Sales volume and unit price compound growth in 19-21 were 22.6%/8.6% respectively. Both are popularized positions; gross margin increases brought about by increased average prices and good cost control. In '21, gross margins of the two were 74.9% and 79.9% respectively.

Looking at channels, Amazon's rapid growth became the company's largest channel. The compound growth rate in 19-21 was 72.5%. As of 19-21, 22H1 accounted for more than 90%, maintaining a high gross profit margin of 75.9%; self-built websites became the second largest channel, with a gross margin of 80.3% at 22H1. Looking at regions, due to the influence of Amazon's customer base structure, North America is the largest market, and 22H1's revenue share increased to 95.5%.

Cross-border B2C clothing and footwear are booming in China, without saying that they are the leaders in the North American market. According to Frost & Sullivan's data, in terms of demand, China's cross-border B2C e-commerce clothing and footwear GMV reached 75.3 billion yuan in 2021, with a compound growth rate of 47% in 17-21. It is the largest cross-border e-commerce sales category, higher than the industry's growth rate. It is expected to maintain an average compound growth of 19.5% in 21-26, showing a high level of prosperity. In the future, factors such as an increase in the online penetration rate of global clothing and footwear, and e-commerce policy support for domestic cross-border exports will continue to drive the growth of the industry. On the supply side, Chinese sellers have become important participants in third party platforms such as Amazon with high-quality product supply and flexible online operations, accounting for 44% of the market share on the four major platforms (Amazon, eBay, AliExpress and Wish) in '21; the pattern of Chinese sellers in the apparel and footwear category was scattered, with CR5 being 1.9% in 2021, with a global market share of 0.4% of GMV of 2.46 billion yuan, ranking first in 2021 with 2.46 billion yuan of GMV in North America.

Strong design strength, stable supply system, and strong operation ability help create popular models and incubate multiple brands.

The company has successfully created a variety of popular products. The best-selling products launched over the past 19 years have contributed 1.7 billion yuan in revenue, accounting for 24.5%. At the same time, it has the ability to incubate multiple brands and operates more than 300 brands, of which 87 popular brands have annual sales of more than 10 million yuan. We believe that it mainly benefits from the following advantages: 1) In terms of product design, the company's design team is strong. Up to 22H1, the company has 344 designers, 31% have digital experience, and has rich database storage and analysis capabilities, providing the foundation for new product development and the creation of hot products. 2022H1 has developed more than 9000 new products, accounting for 79% of total sales; 2) In terms of supply chain management, the company has built a proprietary IT system to control the industry chain. It has 37 exclusive OEMs, stable cooperation, quick return of new products. It takes as little as 22 days from design to delivery, and the first order can be as low as 10 pieces. The cost of large-scale production of popular products continues to decrease, and the cost of 2022H1 products accounts for only 18%; 3) In terms of operating customers, the company has been deeply involved in e-commerce for more than ten years, has accumulated experience in platform operation, has rich experience in internet marketing and third-party platform operation, and has a leading position in platforms such as Amazon and Wish.

Expand the European market+build your own website to increase revenue, optimize the supply chain to reduce costs, and growth can be expected. China's cross-border B2C e-commerce apparel and footwear is booming, and the competitive pattern of the industry is scattered. As the company continues to maintain the advantages of the Amazon platform, capital help will open up incremental space: 1) increase investment in the European market and increase its share; Europe is the second largest B2C e-commerce market in China, and European and American customers have some similarities. The company's successful experience in the North American market is expected to be replicated. It is planned to invest 80 million yuan in marketing expenses over the next 3 years to accelerate the development of the European market; 2) Increase investment in self-built websites and reduce reliance on a single channel. It is expected that by the end of 23, the company will initially develop large-scale independent website marketing solutions. A total of HK$0.4 billion was invested over 24-25 to enhance customer acquisition capacity. Furthermore, the company plans to increase the carrying capacity of warehousing logistics in the future, and plans to actively expand the OEM supply chain in the Southeast Asian market, reduce costs, and increase profitability.

Profit forecast and investment rating: We expect the company's revenue in 2022-2024 to be 3.06 billion yuan, 3.89 billion yuan, and 4.94 billion yuan respectively, and net profit of 160 million yuan, 260 million yuan, and 410 million yuan respectively. Corresponding to the closing price of PE on November 25, 2022, it is 19.1 times, 11.6 times and 7.3 times, respectively. According to the relative valuation method, we selected Anker Innovation (leading cross-border e-commerce) and Peacebird (domestic apparel brand) as comparable companies. According to the latest closing date, the average PE of comparable companies in 2022-2024 was 22.6 times, 15.6 times, and 12.7 times respectively. As a leading company in China's cross-border B2C e-commerce apparel and footwear market, short-term performance recovery can be expected. The medium to long term benefits from high industry prosperity, expansion of the European market+self-built websites, etc., to open up incremental space and optimize supply chain costs. It is expected to grow steadily in the future, 23-24 The valuation is slightly lower than the average of comparable companies. We are optimistic about the company's future development. We are optimistic about the company's future development. The first coverage has given it a “buy” rating.

Risk factors: The pandemic has repeatedly affected the supply chain and thus business; fluctuations in the US economy have weakened consumption power which in turn affects terminal demand; changes in international trade policies affect tax risks; and the risk of differences in valuation systems.