The company is the leading clothing seller in China on the Amazon platform. GMV ranked first among B2C cross-border Chinese sellers of footwear and clothing in North America, and is actively developing its own independent website. Relying on the first-mover and digital advantages of marketing, as well as excellent product and supply chain capabilities, the company has maintained a rapid growth momentum in recent years. The short-term impact of North American macroeconomics puts pressure on the company's performance and inventory turnover. Looking at the long term, in the context of the rapid growth of the clothing cross-border e-commerce industry and the clothing category on the Amazon platform, the company is expected to fully enjoy platform empowerment and industry dividends, and performance growth is highly certain. We expect the company's revenue/net profit CAGR for 2022-2025 to be 24%/50%. Referring to comparable company valuations, the company was given 15 times PE in 2023, corresponding to a target price of HK$11 and a market capitalization of HK$5.5 billion. First coverage gave it a “buy” rating.
A leading e-commerce shoe and clothing seller in North America. The management has extensive e-commerce and digital experience and transformed clothing cross-border e-commerce in 2014. Since 2019, efforts have been concentrated on developing the Amazon platform business and self-operated independent websites. It has cultivated 300 brands, of which 87 popular brands have annual sales of more than 10 million yuan, making them e-commerce sellers for the largest footwear platform in North America in China. 2022H1 Amazon/Wish/self-operated websites accounted for 90.6%/1.7%/5.9% of revenue; North America/Europe/Asia accounted for 90.3%/3.5%/0.5% of revenue; clothes/footwear accounted for 79.6%/20.2%, with pricing ranges of 10 to 387 yuan/101 to 444 yuan respectively, to develop business with middle and high-end high-quality customer groups through e-commerce platforms.
Recent business situation: Rapid growth, successful channel transformation to the Amazon platform. 1) Rapid overall growth.
The 2021/2022H1 company's revenue was 2,347/1,278 million yuan (+24%/+16%), the 2018-2021 CAGR was 21.2%; net profit was 201/061 million (+76%/-46% compared to the same period), and the 2018-21 CAGR was 35.8%. 2) Amazon's business performed well, increasing its share to 90%. The 2021/2022 H1 Amazon business revenue was 1,67/1.12 billion yuan (+171.9%/+83.9%), accounting for 71%/91% (+39 pcts/+30pcts), and the 2018-2021 CAGR was 75.2%. The company is expected to fully enjoy the growth dividends of Amazon as the leading e-commerce platform for apparel in North America in the future.
Industry trends: GMV in the footwear category on the Amazon platform jumped to number one in the US in 2020, and North American apparel e-commerce is expected to continue to grow. 1) Amazon's apparel category is growing rapidly, and third-party sellers are playing an important role. According to Frost & Sullivan's forecast (quoted from the company's prospectus), the Amazon footwear market will reach 591.6 billion yuan in 2026, corresponding to the 2021-2026 CAGR of 20.7%. According to Amazon's antitrust investigation by the US House Judiciary Committee in 2020, third-party sellers contributed 72% of sales in the clothing category on the Amazon platform, accounting for about 28% of online clothing sales in the US. 2) North American e-commerce still has room for development. Euromonitor predicts that the US apparel e-commerce market, which accounts for the highest share of the company's revenue in 2021, will reach 113.697 billion US dollars (+21% year on year), accounting for 27% of the global clothing e-commerce market. It is expected that there will be room for growth of 70,263 billion US dollars in 2020-2025.
Core advantages: Excellent marketing ability takes the lead, and excellent product & supply capabilities reinforce the advantage. 1) Marketing:
Digital marketing creates hits, and popular products have first-mover traffic barriers. The company has a strong ability to create popular products. As of June 30, 2022, the company's brands had 1,089 clothing and footwear products that ranked among the top 100 best-selling products on Amazon. Under Amazon's current algorithm, the seller's existing best-selling products will be at the forefront of searches for a long time. The company relies on excellent product quality, accumulated historical praise, and continuous investment in digital marketing to form a natural traffic barrier for latecomers. 2) Product strength: The hard strength of the product extends the sales cycle of popular products. The company extends the life cycle of popular models by continuously iterating on popular designs, and the life cycle of popular products can reach more than 4 years. Taking the company's top 3 best-selling products on the Amazon platform in 2018 as an example, product sales have maintained an average annual growth rate of more than 50% for 3 consecutive years, and can continue to occupy the top positions in the Amazon clothing category sales list. 3) Supply chain: Flexible supply chains reinforce operational advantages. With the help of a flexible supply chain, the company was able to complete design and trial production in as little as 7 days and deliver to customers within 15 days. Through the “small order quick reverse” model, 78.8% of the company's sales came from popular products, and 84.5% of orders were additional popular products, which minimized the risk of slow sales.
Risk factors: Slowing overseas consumer demand: industry competition intensifies; self-operated websites fall short of expectations; international trade frictions escalate; logistics costs rise; changes in third-party e-commerce platform policies; risk of rising marketing traffic costs.
Investment advice: The company is the leading clothing seller in China on the Amazon platform. GMV ranked first among B2C cross-border Chinese sellers of footwear and clothing in North America, and is actively developing its own independent website. Relying on the first-mover and digital advantages of marketing, as well as excellent product and supply chain capabilities, the company has maintained a rapid growth momentum in recent years. The short-term impact of North American macroeconomics has put pressure on performance. Looking at the long term, in the context of the rapid growth of the clothing cross-border e-commerce industry and the clothing category on the Amazon platform, the company is expected to fully enjoy platform empowerment and industry dividends, and performance growth is highly certain. We expect the company's net profit to be $155/333/492 million for 2022-25, and the corresponding revenue/net profit CAGR for 2022-2025 is 24%/50%. Referring to the PE valuation levels of leading Chinese sellers in Amazon Home and other categories, Lego Co., Ltd. and Anker Innovation (current price corresponds to 2022/23 average PE 19/15 times, 2022-2024 average PEG 0.64 times, based on Wind's consistent expectations), the company was given 15 times PE in 2023, corresponding to 0.45 times the PEG valuation in 2021-2024, corresponding to the target price of HK$11, with a market capitalization of HK$5.5 billion, covering the “buy” rating for the first time.
