Main points of investment
Historical review: the "Flying" series has become a bomb, and children's clothing and e-commerce have become new drivers.
361 °was founded in 2003 and listed in Hong Kong, China in 2009. In 2022, the company's income and net profit were 6.96 trillion yuan and 7.5 billion yuan respectively, and the gross profit margin and net profit margin were 40.5% and 10.7% respectively. At present, there are 7768 stores in mainland China (54800.2288 for adults / children's wear respectively), mainly based on the distribution model. Previously, the market did not pay much attention to the company, but the recent changes of the company are as follows: (1) international business and midsole technology promote the competitiveness of products, and the "fly" series has become explosive; (2) children and e-commerce have become the other two major drivers. we expect the share to increase to 30% in the future; (3) successful entry into Hong Kong Stock Connect and improved liquidity.
Sports industry: short-term destocking, there is still room for permeability improvement in the third and fourth lines, we analyze that the industry has ushered in a golden growth period since the end of the last round of destocking in 2015, that is, the improvement of first-and second-line running penetration, small brand reshuffle led to the improvement of leading concentration, mid-bottom technological change led to the improvement of product strength, superimposed the rise of the national trend in 2021 led to the improvement of domestic product brand strength and profit margins, but the industry has entered the stage of destocking in 22 years. However, there is still room for improvement in the third and fourth line penetration, and it still has a price advantage over foreign and first-and second-tier brands.
Company advantages: deep ploughing midsole technology, focusing on cost-effective advantage (1) the company locates in third-tier cities and below, and still has a price advantage of 25-35% with first-tier brands; (2) the company focuses on the unique midsole technology QUZhuKFLAM, which promotes the proportion of functional products of basketball shoes and running shoes, and the "Flying" series has become a hot product. (3) through the cooperation with NBA stars Ding Weidi and Gordon, the company's basketball shoes are successfully out of the circle, and the flagship Big3 3.0 series basketball shoes are very popular in the market.
Growth driver: store efficiency improvement + new drivers for children and e-commerce + net interest rate increase (1) compared with their peers, the company still has more room to improve store efficiency. 361-degree products are mainly concentrated in 200-400 yuan, we analyze that 361-degree products have room for price increase. The update of the 9th generation store is also expected to improve the overall store efficiency. (2) the number of net stores of children's clothing is higher than that of the main brands, and the fourth-generation stores contribute to the growth of store efficiency, and the proportion of children's clothing and e-commerce is expected to increase to 30%. (3) the company's net interest rate is expected to increase to 12-15%.
Profit forecast
It is estimated that the company's operating income for 23-25 is estimated to be 80.30 million yuan, an increase of 15.36 percent, 14.03 percent, 12.66 percent, 12.66 percent, and 15.30 percent, 15.38 percent, 15.47 percent, respectively, on a year-on-year increase of 15.30 percent. In 23-25, EPS is forecast to be 0.42, 0.48, and 0.56 yuan, and PE, corresponding to the closing price of HK $4.11 on July 27, 2023, is 9, 8max, 7X. It is optimistic that the brand power and product power of 361 degrees continue to improve, and children's clothing brands contribute the second growth curve, covering it for the first time and giving it a "buy" rating.
Risk tips: uncertainty of the development of the epidemic; shop opening is not as expected; channel inventory handling is not as expected; systemic risk.