After a period of silence, the new stock market of Hong Kong stocks became lively again, not to mention stunning the audience with a nearly 200% increase.Master Lu (03601.HK) $Another new stock listed on the same day$Topsports International Holdings Limited (06110.HK) $Also with a steady rise and huge turnover, it has attracted the attention of Hong Kong stock investors.

As of press time, Topsports International Holdings Limited reported HK $9.28, an increase of 9.18% over its share price, with a turnover of HK $2.389 billion and a total market capitalization of HK $57.547 billion, more than$AAC Technologies Holdings Inc. (02018.HK) $、$Semiconductor Manufacturing International Corporation (00981.HK) $、$Shanghai Fosun Pharmaceutical (02196.HK) $Among the star stocks, this market capitalization ranks third among the new stocks listed this year, second only to$Budweiser Brewing Company APAC Limited (01876.HK) $及$Hansoh Pharmaceutical Group (03692.HK) $。

According to the prospectus, Taub International, a sports retailer that mainly distributes sports shoes and clothing brands such as Nike Inc and Adidas, operated a total of 8372 direct stores across China as of September 17, 2019.

Tuobo international store, Tuyuan official website

From the perspective of ownership structure, the controlling shareholder of the company is Belle International. Belle International holds all the shares of the company through its wholly-owned subsidiary Belle Sports, which is finally owned by Muse Holdings through its wholly-owned subsidiaries Muse B and MuseM.

Muse Holdings shareholders are Wise Entrepreneurship (46.36 per cent), Hillhouse HHBH (44.48 per cent) and SCBL (9.16 per cent), with Hillhouse HHBH controlled by Hillhouse LP exclusively managed by Hillhouse Capital and SCBL ultimately controlled by CDH V Holdings Company Limited, previously a general partner of CDH fund V.

In 2017, Belle International was officially privatized and delisted from Hong Kong shares, sparking heated discussions among investors. The total purchase price of 45.3 billion yuan has also become the largest privatization transaction in the history of the HKEx. In the golden age of domestic women's shoes, Belle has become a giant enterprise in the domestic retail industry, but due to the poor performance of core women's shoes in recent years, and with the rise of sports consumption, the international sales of sports shoes and clothing is developing rapidly.

However, the net proceeds from IPO will mainly be used to repay 45 per cent of the outstanding payments due to Belle International and its fellow subsidiaries; about 26.8 per cent will be used to repay the company's short-term bank loans; about 10 per cent will be used for the company's working capital and other general corporate purposes; about 8.5 per cent will be used to settle the company's dividends payable; and 9.7 per cent will be used for technological innovation in the investment business. More than half of the funds raised are used to repay debts, making investors wonder how the business is doing.

However, from the latest financial report before Belle's privatization, we can see that the revenue of sports and clothing business is as high as 22.75 billion yuan, accounting for 54.5%, which is the main source of revenue of the group. This is also the first time that the proportion of sports shoes and clothing business has exceeded that of shoes and clothing business. The development of sports shoes and clothing still has a lot of room for imagination.

Let's take a look at how much room for imagination is in this part.

First, a simple business model: selling Adidas and Nike Inc to get rich

1. Open your own shop to sell goods and do wholesale business.

From the perspective of revenue composition, Topsports International Holdings Limited International not only opened its own shop to sell goods, but also engaged in wholesale business.

For the years ended February 28, 2017, 2018 and 2019, the company's total revenue was 21.69 billion yuan, 26.55 billion yuan and 32.56 billion yuan (the same below), with revenue growth of about 22.5%, but newly updated post-hearing data show that in the three months ended May 31, 2019, the company's revenue was 8.937 billion yuan, an increase of 13.1% over the same period last year.

From the perspective of revenue composition, the company mainly sells goods, accounting for more than 99% of the revenue; in addition to direct operation, the company also develops independent third-party business, and then calculates fixed or floating joint venture fees according to the percentage of sales. however, at present, the joint venture expenses can be ignored because the revenue accounts for less than 1%.

According to the sales channel, the company's sales revenue is mainly retail business, accounting for more than 90% of the long-term share. In addition to developing its own business, the company is also actively carrying out wholesale business, developing downstream retailers and expanding its business scope, accounting for about 10% of the wholesale business.

In the retail business, Taobo International mainly operates a single store, specializing in selling a specific brand of sports shoes and clothing products, which is obviously different from the international market, most of the general sports shoes and clothing retail stores operate multi-brands. In terms of proportion, single-brand stores account for more than 80% of sales for a long time. The company said that the competitive advantage of a single-brand store is that it can show the brand image, as a physical extension of the brand value proposition, and provide customers with a unique brand experience.

In terms of profitability, the gross profit margin of the proprietary business is significantly higher than that of the wholesale business. In recent years, the gross profit margin of the company's retail business has basically remained stable at about 45%, while the wholesale business has fluctuated greatly. Although the proprietary business is more profitable in terms of gross profit margin, the company's net profit is not high.

On the whole, although the company is mainly proprietary business, it is still a distributor, and its net interest rate is certainly not higher than that of the manufacturer, but its profitability remains stable.

In short, Topsports International Holdings Limited International is a dealer who opens its own shop to sell goods and also does wholesale business, but its profitability is not very strong.

2. Stores have been opened all over the country

Since it is to open their own stores to sell goods, the first thing to pay attention to is the number of stores. As of September 17, 2019, Topsports International Holdings Limited International operates a total of 8372 direct stores, of which 8317 brand stores and the remaining 55 are multi-brand stores.

Judging from the changes in the number of stores in recent years, the number of new stores in the company is gradually slowing down. The number of new stores opened in 2017 was 1438, and the number of stores closed was 817. by 2019, the number of new stores opened was 1415, but the number of stores closed reached 1374, so the net growth of stores showed a downward trend. In the three months to May 31, 2019, the company's total number of stores was 8214, down from 2019, but according to the updated prospectus, the number of stores has reached 8372, an increase of 158 from the end of May.

Generally speaking, the number of stores has a ceiling effect, when the store has a certain scale, the new stores are no longer economies of scale, but lower operational efficiency, but from the data released by the company, the average retail sales of the company's direct stores are still increasing, that is to say, the company's operational efficiency is still improving.

From the point of view of the geographical coverage of the store, the main areas currently covered are Luyu, the north and the south, and the proportion of these three areas is close to 50%.

As mentioned earlier, in addition to developing self-supporting business, the company is also actively carrying out wholesale business, developing downstream retailers and expanding the scope of business. The downstream retailers of the company have maintained steady growth. As of September 17, 2019, there are 1103 downstream retailers operating 1957 stores, that is to say, with the number of stores of downstream retailers, the number of stores of Topsports International Holdings Limited International has exceeded 10,000. Judging from the layout of the number of stores, Gobo International is a nationwide dealer.

3. Get rich by selling Nike Inc Adidas family

In terms of product composition, Topsports International Holdings Limited International mainly sells Nike Inc and Adidas, which account for about 90 per cent. The company began its business relationship with Nike Inc in 1999 and became Nike Inc's largest retail partner and customer in China in 2004 in terms of purchase amount, and in the same year, the company started a business relationship with Adidas. In 2012, it became Adidas's largest retail partner and customer in the world (also based on the purchase amount).

Can families get rich just by selling Nike Inc and Adidas? From an operational point of view, Topsports International Holdings Limited International is indeed OK. As of February 28, 2017, 2018, 2019, and May 31, 2019, the inventory turnover days of Pao Bo International were 103.6 days, 103.2 days, 103.5 days and 115.2 days, basically stable in the first three years, and increased significantly in the last three months.

Although this inventory number is higher than that of other sportswear manufacturers, such as Li Ning Co. Ltd. 's inventory turnover days in the first half of 2019 is 74 days, Anta's inventory turnover days is 80 days, but compared with Baosheng International, which is also a sportswear dealer company, Pao Bo International has a lot of advantages in the first half of 2019, according to Frost Sullivan's report. Topsports International Holdings Limited International's inventory turnover days are significantly lower than the industry average of 180 days. As the proportion of the company's wholesale business is very small, accounts receivable data are not compared here.

However, in terms of inventory, Topsports International Holdings Limited International's inventory also increased significantly in 2019. As of February 28, 2019, the company's inventory was 6.138 billion yuan, up 33% from the same period last year, much higher than the revenue growth rate, and the inventory increased to 6.527 billion yuan in the last three months, although the company said it was preparing for spring and summer sales. you can still see that the company has a certain amount of inventory pressure.

In addition, the company also has a certain debt pressure, and the asset-liability ratio has also increased from 59.8% in 2016 to 88% in 2019, mainly by a substantial increase in short-term borrowing, which has increased to about 2 billion by September 2019. the weighted average annual interest rate is 4.5%. The repayment pressure can also be seen from the main purpose of IPO fundraising, with less than 20% of the money spent on its own operations and the rest on debt repayment. However, the $3.363 billion payable to the parent company and fellow subsidiaries is not of a trade nature. It is a long-term tenancy arrangement and is an unsecured, interest-free debt.

All in all, from the operational level, the company's operation remains stable, but there is still some inventory pressure and debt pressure.

Second, the sports industry stars sea, and Topsports International Holdings Limited International occupies the leading position

From the industry level, Topsports International Holdings Limited international firmly occupies the leading position.

The retail market of sports shoes and clothing in China has the characteristics of large volume and fast growth. In terms of total retail sales in 2018, China has become the world's second largest sportswear and footwear retail market after the United States and one of the world's fastest-growing major markets. And from the current upsurge of "national fitness" and the country's attention to sports, sports shoes and clothing will grow further in the future.

Although the sports shoes and clothing market is still an incremental market, the sports brands have been divided. Leading domestic brands have gained a firm foothold in the mass sports shoes and clothing market and some segments of the high-end market. According to the data of Euromonitor in 2017, in the Chinese market. Nike Inc and Adidas have absolute market share, with a combined market share of 40.9 per cent. This is also an advantage for Topsports International Holdings Limited International, which mainly sells Nike Inc and Adidas.

According to the prospectus, China's main sports retailers include brand proprietary channels, national retailers and regional retailers, which are currently dominated by national retailers, while according to Frost Sullivan, as of the end of 2018, there are only three national retailers in China, including Topsports International Holdings Limited International.

In terms of retail sales, the company ranked first in China's sports shoes and clothing retail market in 2018, with a market share of 15.9%, higher than other national or regional retailers.

Although sports shoes and clothing is a good market, but to be a distributor and a manufacturer is different, even if Topsports International Holdings Limited International firmly sit on the leader, will also bear a certain degree of inventory pressure, and its profitability is also limited.

Third, the future imagination space: there is growth, but also risks.

1. Is there room for growth in the future?

Judging from the current situation, Topsports International Holdings Limited international data is eye-catching, profitability is stable, and it is really good. However, investment is about the future, and its growth has to be taken into account here. Is there any room for it?

From the perspective of Topsports International Holdings Limited International's business model, the number of stores is an important factor in determining revenue, and the future growth of stores also determines the growth of revenue, but when the number of stores reaches a certain extent, it will cause the overlap of the operating radius of new and old stores and reduce operational efficiency.

As of May 31, 2019, the number of Topsports International Holdings Limited International's own stores has reached 8214, all over the north and south of China. In terms of absolute quantity, the number of Topsports International Holdings Limited International stores is unlikely to grow explosively in the future. And the company's store growth has also begun to slow in the past two years, with 139 new stores opened in the last three months, while 268 stores closed, showing negative growth, but as of Sept. 17, the company's number of stores has reached 8372, an increase from the previous level, but still slightly lower than the previous level.

According to the general logic, the number of stores decreases, revenue will also slow down to a certain extent, but from the growth point of view, Topsports International Holdings Limited International still maintains rapid growth, this is why?

In terms of the change in the number of stores, it is really worrying, especially when the number of new stores was only 41 in 2019, compared with a negative increase in the last three months, but in terms of the number of stores by size, small stores of 150 square meters were closed, while large stores of 150, 300 square meters and 300 square meters are still increasing.

Here you can see the change in the company's business strategy: by constantly adjusting the layout of stores, closing inefficient small stores and laying out large stores. This is also the reason mentioned earlier that the average retail sales of the company's direct stores are still increasing. The company also said that it will increase the layout of strategic stores in the future. In April this year, the company opened the largest NBA store outside North America in Beijing, covering an area of more than 1000 square meters, attracting a large number of NBA fans.

In addition to the adjustment of the store size, from the store layout point of view, the company also has a lot of achievements. At present, the company focuses on three major areas: the Luyu region, the northern region and the southern region. The number of stores in these three major areas accounts for 50%. In the Luyu area with the largest number of stores, the number of stores in Shandong and Henan provinces alone is as high as 1910.

The number of the company's stores is basically concentrated in the north, while the layout in the south is too small. Judging from the number of stores announced by the company on September 17, the main areas to close stores are in North China, Shanghai and Zhejiang, and southwest China. At the same time, the number of stores in Shandong, Henan and southern regions is still increasing, which means that the company will further distribute the southern region in the future.

Generally speaking, in terms of store size, the company is also constantly adjusting, and the structural dividend with an increased proportion of large stores still exists; in terms of the number of stores, although the number of Topsports International Holdings Limited International stores has spread all over the country, it also has its own emphasis, mainly in the north, while the south is still expanding. With the layout of stores in the south and the adjustment of the scale of opening stores, Topsports International Holdings Limited still has some space in the future. At the same time, because the company attaches great importance to offline store experience, offline stores from sales-driven to experience-oriented, which is also the reason why the company does not focus on the development of e-commerce.

2. Impact: the impact of e-commerce on offline stores

Over the years, all offline stores can not escape a problem, that is, e-commerce, the impact of e-commerce on physical stores is no longer news. Topsports International Holdings Limited's international business is mainly offline, with direct stores accounting for more than 80 per cent of revenue, which is the key revenue of Topsports International Holdings Limited International.

However, judging from the financial statements of Topsports International Holdings Limited International in the past three years, it is basically unaffected, and the revenue growth rate remains stable. The latest three-month data slowdown has a lot to do with the number of stores and has little to do with e-commerce, which makes people wonder why Topsports International Holdings Limited's offline store business is not affected by e-commerce. Will the future be affected by e-commerce?

In fact, Topsports International Holdings Limited International has also developed its e-commerce business, which has been managed by its parent company Belle since March 2017. this year, the company also signed an e-commerce service framework agreement with Belle. Belle provides e-commerce services for the company, and the company pays monthly commission and related service fees for platform services. From the proportion of commission and the fees paid roughly, the proportion of e-commerce revenue is not very large. It can be seen that the company's business focus is still on the layout of offline stores.

The layout of the e-commerce platform not only ensures that it will not be left behind, but also enhances the shopping experience of offline stores and focuses on store management, which may be one of the reasons why Topsports International Holdings Limited is still standing under the impact of e-commerce.

3. Risk: over-reliance on Nike Inc Adidas

In addition to the problem of growth, the problem of Topsports International Holdings Limited International's over-reliance on main brands can not be ignored. As mentioned earlier, from the perspective of product composition, the main international brands of Topsports International Holdings Limited are Nike Inc and Adidas, which account for about 90 per cent of the total, which also worries investors.

The company began its business relationship with Nike Inc as early as 1999. In terms of purchase amount, the company became Nike Inc's largest retail partner and customer in China in 2004. In the same year, the company started a business relationship with Adidas and became Adidas's largest retail partner and customer in 2012 (also based on the amount of stock purchased).

Judging from the number of years and amount of cooperation between the two sides, Nike Inc and Adidas are unlikely to suspend cooperation with Topsports International Holdings Limited International. In June this year, Nike Inc announced his results for the fourth quarter of fiscal year 2019. Nike Inc's revenue in Greater China reached US $6.208 billion, an increase of 24% year-on-year on the basis of unchanged exchange rate, making it the fastest-growing region. As an important part of entering the Chinese market, dealers play an important role in sales volume, and it is also a great loss to Nike Inc to suspend cooperation or change dealers. The same is true of Adidas.

At the same time, the company has been aware of the problem of over-reliance on major brands, and has been working with other brands over the years, and the share of revenue from major brands has dropped from 90% in 2017 to 87.4% in 2019.

Summary

On the Hong Kong stock market, there are also dealers who also do sports shoes and clothing-Baosheng International, but unlike Topsports International Holdings Limited International Agent Nike Inc Adidas, Baosheng International initially represented Converse. The initial queue of the two is obviously different, and the later results are self-evident.

Baosheng International listed in 2008, in the macro environment is not welcomed by the capital market, coupled with the recovery of the exclusive agency of Converse in 2009, the stock price is not much better, until the rise of the movement in recent years, Baosheng International returned to the view of investors.

The fate of Topsports International Holdings Limited International is completely different from that of Baosheng International. Topsports International Holdings Limited International is listed on this wave of sports wind. From the perspective of business conditions, Topsports International Holdings Limited International is really good, with stable revenue growth and relatively stable profitability. there is still some room for imagination in the future, and the current price-to-earnings ratio of 20x or so is not expensive compared with the price-to-earnings ratio of 16x of Baosheng International.