Key points of investment
The continued active expansion of the diversified product categories and channel structure has planned a clear growth path for the brand; the high-end sports series represented by the golf series has successfully tested the waters, and KC and 1881 are also expected to be gradually launched in '24, and the luxury goods group's development landscape is about to expand.
Continue to enrich product categories and actively plan channel expansion
1) Adhering to first-class product quality and continuing to enrich product categories. On the design side, the company has a diverse team of designers from China, England, Italy, and South Korea, and has long-term cooperation with global first-tier suppliers such as Itochu from Japan, Toray from Japan, Conlikoni from Italy, and Gore from the United States. The number of product categories and SKUs continues to expand, such as launching outdoor products including jackets and ski suits; on the basis of further improving the functionality of professional line products, leisure line products have become significantly younger and are widely used in commuting, sports, etc.
2) Supported by strong product strength, channel profitability is outstanding, and channel development plans are still active. With the scarcity of its own sports and leisure style and the continuous improvement of its products and brand power, we have seen that it has always been at the top of the rankings in department stores around the world. The high price increase ratio also supports the channel's high profitability, and helps the company's department store channel stores to continuously upgrade their location and gradually obtain the best location on the same floor. Under the positive cycle brought about by the upgrading of the store's image and the continued leadership in store profitability, we believe that the company's channel expansion is still expected to maintain a relatively rapid pace of expansion in 2024.
Luxury mergers and acquisitions have opened a new chapter in the company's growth. KC&1881 products are expected to be launched in 24 years. The company issued a foreign investment announcement on April 4, 23 to complete the acquisition of global trademark rights between Italian luxury menswear brand CERRUTI1881 and British sports fashion brand K&C as a subsidiary. At the same time, the company also put forward a beautiful growth vision at the 20th anniversary press conference, hoping to achieve 10-fold growth in the next 10 years, and achieve revenue target of 30 billion yuan by 2033. Based on revenue of 2,885 billion yuan in 2022, the revenue CAGR for 2023-2033 is ~ 24%. Looking at the company's outlook, in 2033, the company hopes that CERRUTI1881's revenue will exceed 5 billion; KENT & CURWEN's revenue will exceed 3 billion; Bienleuven GOLF's revenue will exceed 5 billion yuan; Bienleven's main standard revenue will exceed 15 billion yuan; and Venice Carnival's revenue will exceed 2 billion yuan.
CERRUTI1881 and KENT & CURWEN are expected to be unveiled in the fall and winter of 2024. In the future, the company will focus on the development direction of internationalization, high-end, youth, and standardization, and promote the collaborative development of multiple brands through differentiated positioning and layout.
Under a low base, Q4 performance is still worth looking forward to. After the merger and acquisition was completed, the cash flow status was still abundant. In Q1-3, the company achieved cumulative revenue +26% to 2.80 billion yuan, and cumulative net profit to mother +32% to 760 million yuan. The performance was excellent in the context of external environmental pressure. Q1-3 Gross sales margin was +1.8pp to 76.6%, and the brand power improvement logic continues to be implemented. We expect it to be related to factors such as the company's launch of higher value-added products, stricter discount rate control, and improved sales through direct management channels. We expect Q4's performance is still worth looking forward to under the low base effect
As of the end of September '23, the company's net operating cash flow was 970 million, YOY +23%, and the net present ratio was as high as 128%. After the acquisition was completed, the company's cash position was still strong.
The fourth phase of employee ownership shares to share the company's growth dividends
The company completed the purchase of 5.91 million shares of the fourth phase of the employee stock ownership plan on 23/7/28, accounting for 1.04% of the total share capital. The average transaction price was 33.8 yuan/share, and the lockdown period was one year. The funding sources for this time were self-raised funds from the participants and loans provided by Mr. Xie Bingzheng, the controlling shareholder of the company. Chairman Xie Bingzheng promised that if the amount that can be distributed after all of the maturing shares of the plan is less than the amount after interest is deducted from the initial subscription principal, he will bear the obligation to make up the difference, demonstrating strong confidence in the company's business development.
Profit Forecast and Valuation:
We believe that by continuing to deepen the field of sports and fashion, the company has created accurate product positioning and continued diversified investment in product promotion to drive channel expansion and high-quality performance growth, and there is still plenty of room for future growth. We expect the company to achieve net profit of 9.7/12.3/1.55 billion in 23/24/25, corresponding to a growth rate of +33.3%/+27.2%/+25.6%, corresponding to PE19X/15X/12X. Since its listing, the company has continued to deliver high quality performance, and it is expected that medium- to long-term growth space will further open up in the context of the acquisition. It is expected that it will welcome a double hit from Davis and maintain its “buy” rating.
Risk warning: insufficient demand for terminals; store expansion falls short of expectations;