Key points of investment:
It has been deeply involved in popular sports circuits for 20 years, and has regained 361 degree of growth with professional empowerment. It was founded in 2003. It positions its brand image with “professionalization, youth, and internationalization”, and focuses on core categories such as running, basketball, comprehensive training, sports life, and children. By the end of '23, the company had 9539 offline stores, including 5,734 major brand stores, 2,545 children's stores, and 1,260 international stores. In the early days of its establishment, the company benefited from the expansion of demand on the racetrack, and then began channel+inventory adjustments to accumulate energy due to oversupply in the industry. In 2019, the company began a rebranding plan and regained growth due to professional empowerment. The compound growth rate of the company's revenue/net profit from 2019 to 23 was 10.6%/22.1%, respectively. Among them, revenue and net profit increased by 21% and 29% respectively in 2023.
Adult clothing: Professional brands in the mass market. Channel optimization drives new growth in 23 years, and the adult clothing business achieved revenue of 6.3 billion yuan, and shoes/clothes/accessories increased 23%/10%/43% respectively. Strong product development empowers professional matrices and focuses on improving product strength. The marketing side takes a three-pronged approach of event sponsorship+endorsement+IP co-branding to promote own events while sponsoring large-scale competitions, as well as launching IP co-brands and signed athletes & stars to boost the brand's volume and influence. Channel side: Consolidate the basic market market and focus on high-quality store opening and e-commerce growth. After the adjustment, the company returned to opening high-quality stores. From 2019 to 23, first-tier cities slightly shrunk to 292, but second-tier, third-tier cities and below had a net increase of 91/196 to 1089/4352 stores, respectively. Online companies mainly operate directly, and their share of online exclusive products reached 87% in '23. From 2017 to 23, online achieved a compound growth of 25.8%, and the share increased by 14pct to 27.6%.
The second curve of children's clothing: high-quality upward track, actively expanding stores and improving efficiency by 361 degrees. The children's clothing business has developed rapidly since its inception in 2009. From 2011 to 23, it had a compound growth of 31.6%, accounting for 23%. In terms of channels, after the group's internal restructuring in 2019, children's clothing maintained a net expansion store. By the end of '23, the number of stores reached 2,545 (the first, second, and third tier accounts for 31%/69%); the quality of stores improved simultaneously, increasing the proportion of fourth-generation stores and independent stores.
Profit forecasting and investment advice
The company's net profit for 2024-2026 is expected to reach 11.51/1356/1,573 billion yuan respectively, up 20%/18%/16%, respectively. The company continuously improves its product strength and operating efficiency on the basis of expanding stores through high-quality channels, driving continuous improvement in store efficiency and operating capacity, and improving brand potential; moreover, children's clothing contributes second growth momentum, and future development can be expected. In terms of valuation, we selected Hong Kong sportswear companies as comparable companies. They have a certain degree of similarity in terms of products, channel types, etc., and were covered by a “buy” rating for the first time.
Risk warning
Sales of new products fell short of expectations, increased industry competition, drastic cost increases, supply of raw materials was blocked, and brand image was damaged.