Yingmei was founded by Zhong Yusheng in 1993. Its main business is to manufacture sportswear and ready-made garments with OEM. It mainly produces and sells track and field clothes, sportswear, sports jackets, sweaters and T-shirts. The company mainly manufactures products for many international brands such as Nike, theNorth Face and Puma. In fiscal year 2015, the United States, China and Europe were the top three sales regions of Yingmei, accounting for 33%, 20.4% and 19.1% of revenue, respectively.
Positioned as a small contract manufacturer to serve the core quality customers.
Nike, the North Face, Puma and Lululemon are the company's main customers. These internationally renowned customers are of high quality, stable growth and continue to expand the high-profit functional clothing market, which has a positive effect on Yingmei's order acquisition and profit margin.
Four production bases to improve the operational efficiency of Yingmei the four production bases are located in Shantou City, Guangdong Province, Huilai County, Guangdong Province, Yifeng County, Jiangxi Province, and Wandan Province, Indonesia. The two factories in Shantou and Huilai in Guangdong Province have the advantages of perfect technology and supporting facilities, mainly producing high-end functional products. The two factories in Jiangxi Province and Indonesia have the advantages of low and adequate labor costs, large production capacity and low technical requirements for middle and low-end products.
At present, the order of Yingmei has a trend of transformation to high-end functional clothing, so the order acquisition, capacity utilization and operating efficiency of the two factories in Shantou and Huilai will have a direct impact on operating profit margins. As for the factories in Jiangxi and Indonesia, we believe that after normal operation, the operation will remain stable.
Gross profit margin has a significant impact on performance, income is stable, basically maintaining low single-digit growth, and FY2014-FY2016 's income has increased by 12%, with an average annual growth rate of 4%. The expansion of gross profit margin has a significant impact on performance, and the significant growth rates of 2015H1, 2015H2 and 2016H1 all benefit from higher gross profit margins, including product upgrades, cost control and increased capacity utilisation. Due to seasonal factors, lower-priced summer sportswear are mainly produced in the second half of 2016, and revenue and profit margins may be affected by seasonal factors.
Fierce competition for risk; significant rise in labor costs; possible losses caused by foreign exchange hedging tools; valuation Yingmei is a small OEM company that relies on several high-quality foreign brands to maintain steady growth in customer orders.
From a business model point of view, this is not a very attractive business, customers' business fluctuations and cost changes will squeeze their profits, making it difficult for the industry to have a high valuation.
At present, Yingmei is in the trend of high operational efficiency of the four factories and upgrading to functional clothing, with good cash flow and solid balance sheets. We believe that the current stock price is undervalued and the expected dividend yield is close to 10%. The 2016 Olympic Games will be an important catalyst for its share price. We give Eagle a "buy" rating with a 12-month target price of HK $2.50, equivalent to a dividend yield of 7 times FY2016P/E and 7.2% FY2016. (current price as of February 26, 2016)