Main points of investment:
Events. The company released its three quarterly reports for 2017. In the first three quarters, the company achieved revenue of 6.232 billion yuan (+ 7.72%), net profit of 340 million yuan (+ 4.5%) and non-net profit of 295 million yuan (+ 1.83%).
Among them, 2017Q3, the company realized revenue of 1.95 billion yuan (+ 9.59%) and net profit of 57.98 million yuan (+ 44.40%).
Women's wear brands continue to differentiate, men's wear business performance is eye-catching. From a brand point of view, the company's five major women's clothing brands account for more than 80%. Among them, the main brands La Chapelle and Puella are in a state of adjustment in recent years due to the relatively high proportion of department stores in the channel structure. LA returned to positive growth in the first three quarters, with a slight year-on-year growth of 1.35% and a decline of 7.30%. 7 Modifier and La Babit é, as new brands established in 2012, the channel structure is mainly shopping centers, with fast store opening speed, and is in a period of rapid growth, with an increase of 14.43% and 35.12% respectively over the same period last year. Candie's performed poorly, falling 3.62% in the first three quarters; since the launch of the company's men's wear brand POTE2013, it has maintained a rapid growth trend, with revenue of 371 million yuan in the first three quarters, an increase of 37.29% over the same period last year.
Monopoly and shopping center channels are growing strongly, while department store channels are still undergoing deep adjustment. From a sub-channel point of view, monopoly (mainly shopping centers) and online channels grew strongly, achieving revenue growth of 21.06% and 51% respectively, accounting for 42% and 13% of total revenue, respectively. Department store counter channels are still under adjustment. Revenue fell 9.04% year-on-year, slightly narrower than China report-10.16%. By the end of September 2017, the company had a total of 9258 counters / stores. During the reporting period, there were 388 new counters, 887 monopolies and 12 franchises, 536 closed counters, 398 monopolies and 2 franchises, a net increase over the end of 2016.
High costs are a drag on profitability. In the first three quarters, the company's consolidated gross profit margin was 65%, a slight decline in 0.34PCT over the same period last year, and the company's sales / management / financial expense rates were 49.62%, 4.73% and 0.20%, respectively, up 0.92/0.17/0.24PCT from the same period last year. Among them, in the third quarter, the company's comprehensive gross profit margin fell by 1.45PCT to 64.84%, and the expense rate during the sales period increased by 0.88PCT to 59.29%. The sharp increase in net profit in the third quarter was mainly due to a decrease in asset impairment losses and an increase in other comprehensive income (government subsidies) as well as a decrease in minority shareholders' profits and losses.
The company's all-direct business model has created a much higher expense rate than that of its peers, while the expense rate continues to rise compared with the same period last year, mainly due to the steady expansion of the company's retail outlets and the rapid increase in rigid expenses such as employee wages and rental fees. the sales revenue is affected by the adjustment of department store channels, the weak retail market and other factors. Operating profit margins have been improved by government subsidies to adjust non-operating income to other income items, but high fees still drag net sales interest rates down 0.17PCT to 5.45 per cent. By the end of September, the company's book inventory was 2.074 billion yuan, accounting for 30.5% of the total assets, mainly due to the company's increase in the stock of autumn and winter products. The net cash flow of operating activities in the first three quarters was 123 million yuan, a decrease compared with the same period last year, mainly due to an increase in cash outflow due to increased inventory and store expansion to pay employees' salaries.
Multi-brand fashion group, build competitive advantage from multiple angles. As a fast fashion, multi-brand and all-direct fashion group located in the mass consumer market, the company has mass fashion women's wear brands with complementary styles and extended customer positioning, such as La Chapelle, Puella, Candie's, 7m and La Babit é, popular fashion men's wear brands such as POTE and La Chapelle Kids children's wear brands, at the same time, the company through independent cultivation and development, external holding merger and other means Launched OTHERMIX, MARC ECKO, JACK WALK, O.T.R, Siastella and other online and offline brands, is currently the largest number of brands listed brand clothing company.
Build the company's competitive advantage from multiple angles. 1) full direct sales network and omni-channel retail model. The company is a rare brand clothing company operating directly in China, with 9258 cabinets / stores in the country by the end of September 2017. The all-direct operation mode creates a strong ability to control the terminal stores, which helps the company to obtain terminal retail data timely and effectively, to make a rapid response to the market, and at the same time, it also contributes to the company's information transformation and the rapid implementation of related policies. Since 2016, the company has launched RFID technology in warehouses and all terminal stores to realize the flow tracking of individual pieces of clothing from factory to warehouse to stores, and can greatly improve the efficiency of warehousing logistics and store goods management, which is also the first listed clothing company in China. 2) efficient product supply and sales system. The company has established a set of efficient product supply system to create the ability to quickly fashion goods. From 2014 to 2016, the company launched about 7300, 11360 and 18720 product styles to customers respectively. The company adopts multi-band new products on the shelves. In 2016, all brands added up to 323 bands of new products. The multi-band loading mode effectively ensures the freshness and fashion of the network display, and attracts the continuous attention of consumers. 3) the advantage of management team and the continuous talent reserve system.
The company has a strong management team, the core members have a wealth of industry experience and professional skills. In addition, the company is committed to the construction of a learning team, the establishment of Lashabel School of Management to provide customized training for the needs of employees, and the implementation of the store partnership system in retail outlets, which has a strong incentive for employees.
Profit forecast and valuation. The company landed on the A stock market on September 25, 2017, and is currently the only brand clothing company in the textile and clothing industry to be listed on the A share market. In the past few years, the Hong Kong stock market has maintained a dividend rate of about 60% and a high dividend ratio. We estimate that the company's net profit from 2017 to 2019 will be 5.55,6.03 and 651 million yuan respectively, an increase of 4.35%, 8.66% and 7.87% respectively over the same period last year, and the corresponding EPS will be 1.01,1.10 and 1.19 yuan per share respectively. With reference to the valuation of the relevant comparable companies, we will give the company 25X PE in 2017, corresponding to the target price of 25.34 yuan per share, covering for the first time and giving the overweight rating.
Risk tips: terminal retail downturn, e-commerce growth decline, inventory scale remains high and so on.