Revenue and net profit growth rates in 20Q2 were +8% and -41% respectively. The 20H1 company achieved revenue of 9.087 billion yuan, an increase of 1.31% over the previous year, and the net profit of the mother was 271 million yuan, a decrease of 40.02% over the previous year. The gross margin was 37.12%, a decrease of 2.87 pct over the previous year, and the net interest rate was 2.98%, a decrease of 2.15 pct over the previous year. Revenue of 20Q2 was 4,591 million yuan, an increase of 8.08% over the previous year, and the net profit of the mother was 140 million yuan, a decrease of 40.97% from the previous year. The gross margin was 41.06%, a decrease of 4.75 pct over the previous year, and the net interest rate was 3.05%, a decrease of 2.53 pct over the previous year.
Benefiting from the impact of the pandemic, Q2 revenue growth improved month-on-month. Revenue increased 8.08% year on year in Q2, a significant improvement from Q1's year-on-year growth rate (-4.79%). We think the main reason was that consumers tended to choose online shopping during the pandemic, consumer habits changed, cross-border e-commerce businesses benefited, and revenue growth changed from negative to positive year-on-year. The revenue of the 20H1 company increased year-on-year, mainly because the import business achieved revenue of 3.379 billion yuan, an increase of 14.72% over the same period, and the export business revenue decreased 4.53% to 5.696 billion yuan. By subsidiary company:
Global Tesco: Set up a live broadcast joint IP to focus on operating the clothing business. 20H1 achieved revenue of 3,977 billion yuan, a decrease of 13.37% year on year. As export business decreased 16.77% year on year to 3.649 billion yuan, import business increased 61.65% year on year to 328 million yuan. Global Tesco focuses on operating vertical clothing websites. Its brands cover a variety of customers and distribute live streaming of influencers. During the period, clothing station Zafu collaborated with 100,000+ global influencers, established partnerships with 15 million fans on social channels, built an in-house community Z-Me to share trendy outfits, and cooperated with world-renowned IPs such as Disney and NASA to increase brand visibility. The unit price and conversion rate of clothing customers increased further during the pandemic.
Patson: Deeply involved in consumer electronics, operating conditions picked up during the pandemic. 20H1 achieved revenue of 2,047 billion yuan, an increase of 29.39% over the same period. Affected by the epidemic, the sales situation improved. The revenue growth rate in Q2 alone reached 63.96%. Sales in categories such as aromatherapy machines, humidifiers, and solar lawn lights increased dramatically. Among them, sales in home and office categories such as call headsets and wireless mice grew impressive year-on-year.
Excellent e-commerce: Entering the maternal and child market and improving the efficiency of e-commerce operations. 20H1 achieved revenue of 3,051 billion yuan, an increase of 11.25% over the same period, continuing to explore cooperation opportunities with brand customers while strengthening channel management and operation capabilities.
Inventory conditions and cash flow improved. The gross margin of the 20H1 company decreased by 2.87pct year-on-year because the company adopted a low-profit multi-sales strategy, and the discount strength increased, and gross margin decreased year-on-year; the year-on-year decline in net interest rate (-2.15pct) was narrower than the decline in gross margin (-2.87pct), mainly due to a year-on-year decrease of 0.73 pct to 33.15%, of which the sales expense ratio was 29.33%, a decrease of 0.78 pct over the previous year, and the management expense ratio decreased 0.17pct to 2.22% year on year, due to a decrease in wages, leasing, equity incentives, depreciation and amortization. By the end of 20H1, the company's inventory was 2,842 billion yuan, down 7.65% from the end of 2019. Inventory control was effective. Among them, Global Tesco, Patson, and Youyi e-commerce inventories were -0.61%, +7.70%, and -26.75% compared to the end of 2019, respectively. 20H1's net operating cash flow (110 million yuan) improved, and 19H1 was -97 million yuan, mainly due to the fact that Patson's net operating cash flow increased 111.98% year-on-year, while the net operating cash flow of Global Tesco and Premium E-commerce decreased by 20.90% and 18.55%.
Taking advantage of the trend of cross-border e-commerce, performance is expected to grow steadily. B2C cross-border business is booming. According to the Cross-border Communications Zhongbao, citing data from the Forward-Looking Industry Research Institute, the Foresight Industry Research Institute expects the global B2C cross-border e-commerce transaction volume to increase from US$949.9 billion to US$2021.4 billion in 2020-2025, with a CAGR of 16.30%. In 2019, China's export cross-border e-commerce B2C market transaction volume was 1.73 trillion yuan, an increase of 23.57% over the previous year. The growth rate is higher than the growth rate of export cross-border e-commerce B2B market transactions (+10.5%). The epidemic has affected consumer habits. Cross-border e-commerce is booming. Cross-border e-commerce has accumulated the ability to operate cross-border e-commerce over a long period of time. Relying on the advantages and policy support of China's industrial chain, it is in a leading position in competition in the cross-border e-commerce industry, and may benefit.
1) Deeply build branded operation capabilities around brands and products. The company has excellent self-owned product brands and self-operated e-commerce websites. According to the 2020 “BRANDZ China Top 50 Overseas Brands” list, ZAFUL, a subsidiary of Global Tesco, ranked 38th in the overall ranking of Chinese overseas brands and 2nd in the online fast fashion category. Gearbest ranked 47th in the overall ranking of Chinese overseas brands and 3rd in e-commerce ranking, after Alibaba and JD.
2) Run big data operations around “people - goods - fields” to enhance the company's operation and promotion capabilities.
3) The company built a trade chain driven in both directions by import and export, and established an efficient warehousing and logistics system. By the end of 20H1, the company's warehousing area reached 284,700 square meters, with 13 and 51 domestic and overseas warehouses respectively.
Brand+marketing+supply chain, the revenue performance of the company's own website was impressive. 20H1 revenue increased 1.79%. Judging from the average monthly number of visits, Gearbest and ZAFUL increased 11.64% and 3.43% to 2.11 and 172 million visits, respectively; judging from the average customer unit price, the three self-operated websites all increased compared to 19H1. Gearbest, Zaful, and Rosegal customer unit prices were 70, 50.9, and 62.3 US dollars, respectively, +18.6, +6.0, and +14.4 US dollars over the previous year.
Profit forecasting and valuation. We expect the company's net profit to be 548 million yuan and 666 million yuan respectively in 2020 and 21, giving the company 19-21 XPE in 2020, corresponding to a reasonable value range of 6.68-7.39 yuan (2020 PS is 0.56-0.62 times), a “neutral” rating.
Risk warning. Changes in the overseas consumption environment, the risk of inventory backlog, and the expansion of import business fell short of expectations.
