Jiuxing Holdings is the world's leading footwear product development and manufacturer. Jiuxing Holdings is the world's leading developer and manufacturer of high-quality shoes, with an annual output of 53 million pairs, accounting for 11% of the global market share. Customers are high-end leisure and fashion brands such as Alexander Wang,Bally,Givenchy,Marc Jacobs,Prada,Tory Burch,ASH,Deckers,UGG as well as sports and outdoor brands such as Nike Inc, Under Armour,Timberland and The North Face.
In the first quarter of 17, sales rebounded, sports still grew rapidly, fashion and leisure began to stabilize, and the retail segment rebounded. Jiuxing Holdings's sales grew by about 10% in the first quarter of 17 (manufacturing grew by 7%, mainly due to production growth, a slight decline in average selling prices, and 15% growth in the retail segment), faster than the target of medium units given by management in fiscal 17. A sharp recovery from the 9.6% and 14.6% decline in sales in the first half and second half of 16 This is mainly due to 1) sales of sports products grew by more than 20% (Nike Inc had a double-digit increase in the middle of the year, coupled with the addition of another fast-growing top brand customer in the second half of 16), 2) sales of leisure and fashion began to stabilize (sales fell 20% in 16 years). Since the fourth quarter of 16, we have seen a rebound in demand for luxury goods, leisure and fashion in both the United States and China, and we believe that this positive consumer sentiment may be caused by the appreciation of asset prices, for example, US stocks (Sipp Index), Chinese house prices reached new highs. If there are no major accidents or setbacks in the future, the momentum may continue and is in line with the sales forecasts of Jiuxing Holdings customers in FY17 and FY18.
The operating margin target given by management in fiscal year 17 should be achievable. Operating profit margin dropped from 7.1% in fiscal year 15 to 5.4% in fiscal year 16, and we think it is expected to rise to more than 6% in fiscal year 17, because 1) leather prices are stable, rising only 3% so far this year. We expect leather prices to increase only by single digits in 2017. 2) the profit margin of Vietnamese production is high and the proportion is gradually expanding. Its overseas production contribution is expected to rise from 32% in FY16 to 40% in FY18) further reducing the number of employees to 65,000 (71,000 in FY16 and 83,000 in FY15).
The retail division is getting better. The retail segment also showed strong growth, with same-store growth of 12% in the last two quarters, 12% in the fourth quarter of FY16 and 9% in the first quarter of FY17, which is positive for the Group. because we speculate that the retail division has lost millions of dollars a year in the past few years, accounting for 1-3% of the group's net profit, which is expected to decrease significantly this year.
The valuation is not expensive, but it is already relatively reasonable. The current price-to-earnings ratio for fiscal 17 is 16 times, slightly higher than the five-year average and a historical range of 12 to 18 times, advising investors to wait for a better buying point. We think that the further catalyst in the future may be 1) better-than-expected customer sales growth, and 2) Vietnam factories will be put into production faster.