We have been operating children's clothing for more than 30 years, and the brand system is perfect. The company is a domestic high-end children's clothing brand operator, and the pyramid brand matrix continues to gain strength. 1) Own brand: The company's own brand “Water Kids” focuses on designing products for children aged 2-15; “Fistrutin” is the company's own brand that has been prepared and operated since 2019; 2) Authorized brands: The company obtained exclusive licensing for Gables and Haggis children's clothing in mainland China in 2013 and 2015; 3) International retail agency brands: Since 2005, the company has been operating international high-end children's clothing brand retail business, mainly including “EMPORANI”, “KENZO KIDS” and” Popular international brands such as “HUGO BOSS”. Furthermore, the “bebelux” international high-end children's clothing boutique collection store was founded to position high-end children's clothing.

Acquire all types of Heavens to increase performance growth momentum. On September 1, the subject of the company's proposed purchase agreement is the ownership of core trademarks such as “Freepers” and “HushPuppies” and all categories of 155 related trademarks, 2 patents, 4 copyrights, and 6 domain names in mainland China, Hong Kong, China, and Macau Special Administrative Region of China. The company will reintegrate the resources of various categories of Huabuz to form synergies between different businesses, further enhance brand power, unify the overall product style of various categories, achieve coordination among all categories, and enhance consumer impression. The acquisition is expected to enable the company to save licensing fees and add new impetus to profit growth.

Omnichannel layout highlights online advantages. The company has established a diversified omni-channel sales model between online and offline, direct management and franchise. As of June 30, 2023, the company has opened 539 offline stores in 31 provinces, autonomous regions and municipalities directly under the Central Government, including 165 direct-run stores and 374 franchise stores; at the same time, the company has opened online stores on well-known domestic e-commerce platforms such as Vipshop, Tmall, and Jingdong. In terms of direct management, the company has set up direct-run stores in many well-known shopping malls in first-tier and second-tier cities in China, taking into account the establishment and promotion of brand image while ensuring store efficiency; on the franchise side, the company continues to expand product coverage; on the online side, the company is committed to cooperating with leading e-commerce platforms to meet the trends of the times.

Profit performance was superior to revenue, and growth remained steady. The company's net profit to the mother continued to grow and performed well. In 2019-2022, the company's net profit to the parent increased from 89 million yuan to 166 million yuan, and the CAGR reached 22.87%. By brand, the gross margin is in that order for own brands

First coverage, giving a “buy” rating. Gaman Apparel is deeply involved in middle and high-end brands of children's clothing and has built a pyramid brand matrix. Leisure and Haggis children's clothing have grown strongly, and e-commerce has taken the lead in the industry. We expect the company's net profit for 23-25 to be 2.24/3.01/366 million yuan, EPS is 2.08/2.79/3.39 yuan/share, and corresponding PE is 12/9/8x, respectively. Referring to the average PE value of comparable companies, the target price is 36.27 yuan, which is covered for the first time and given a “buy” rating.

Risk warning: risk of slowing domestic macroeconomic growth; risk of increasing competition in the children's clothing industry; risk of increasing inventory share and price decline; risk of brand licensing; and risk of product production being outsourced.