FY21 performance is higher than we expected.
The company announced FY21 results: revenue of 1.97 billion yuan, an increase of 28% over the same period last year after divestiture of Japanese Kappa business, and net profit of 1.81 billion yuan, an increase of 394% over the same period last year, which was higher than we expected, mainly due to a substantial increase in investment income to 2.1 billion yuan. The dividend payout rate is about 35%.
From a year-on-year perspective, FY21 Kappa brand proprietary revenue increased 31% to 1.03 billion yuan, contributing 58% of Kappa brand revenue; franchise revenue increased 25% year-on-year to 750 million yuan. By the end of March 2021, the Kappa brand had a total of 1170 stores, with a net opening of 41 for the whole year, and continued to expand shopping malls and Olai stores, including 575,595 self-owned stores and 595 franchise stores, representing a change of 63 and-22 compared with the beginning of the fiscal year. Management plans to continue to focus on improving store efficiency and continue to close inefficient stores in the future. FY21, e-commerce revenue rose 32% year-on-year to 370 million yuan, accounting for 19% of revenue. In order to focus on China's core market business and accelerate domestic business growth, the company sold the Japanese Kappa brand trademark in July 2020 and granted the franchise of the Phenix brand to the franchisee on October 7, 2020.
The deepening of discounts led to a decline in gross profit margin and a substantial increase in profits from financial assets and other investment income. FY21's gross profit margin fell 0.8ppt to 65.6%, while Kappa brand gross profit margin fell 1.2ppt to 68.4%, mainly due to the deepening of retail discounts caused by the epidemic. The net income from financial assets and other investments was 2.12 billion yuan, an increase of 238% over the same period last year, of which the investment division contributed a profit of 2.1 billion yuan, an increase of 269% over the same period last year. After excluding the investment division, the operating profit was about 59 million yuan, and the corresponding operating profit margin was 3.0%. The loss in the same period last year was about 18 million yuan.
The operation efficiency is improved and the business model is continuously optimized. The company's inventory turnover days decreased by 54 days to 194 days compared with the same period last year, and the cash cycle decreased by 36 days to 151 days compared with the same period last year. The company's business model continues to transform, through the quasi-direct business model and digital operation to promote the efficient flow of goods through all channels.
Trend of development
Management has guided FY22 to open 100 stores, flow and revenue to achieve low to medium double-digit growth, and store efficiency to achieve medium to high single-digit growth.
Profit forecast and valuation
Considering the company's higher-than-expected revenue growth and effective thickening of profits from investment income, the company raised its FY22 RPS forecast by 9.9% to 0.23 yuan, and introduced FY23 EPS expectation of 0.25 yuan. The current share price corresponds to 4.6X FY22e/23e Pmax E, maintaining an outperforming industry rating, and raising the target price based on segment plus aggregate valuation by 18% to HK $1.40, with 14% upside room. We value our apparel business at 12 times FY22 Pamp E, and we give a 45% valuation discount to the company's multi-business model.
Risk
The epidemic has lasted for a long time, the competition in the industry has intensified, and the reform has not been as expected.
