The world's top fashion and casual footwear manufacturer. The company is engaged in the development and manufacture of footwear and leather goods. The categories cover luxury, sports and leisure categories, and production capacity is distributed in China, Vietnam and Indonesia. The company has many world-famous brand customers, including ① sports brands: Nike, Saucone, Under Armour, etc., ② fashion shoe brands: Cole Haan, Kate Spade, Michael Kors, Tory Burch, etc., ③ High-end fashion brands: Amiri, Ambush, Alexander Wang, Balenciaga, Balmain, Chloe, Jimmy Choo, Lanvin, Moncler, Off-White, Prada, etc., ④ casual shoe brands: Merrell, Timberland, UGG, Vionic, etc.
The company's order ASP and labor efficiency are the highest in the industry, and the category layout is the most balanced. The company's ASP order in 2022 was $28.5, the highest in the industry (2022 Fengtai/Yuyuan/Huali/Yuqi ASP was $23.8/20.9/13.4/23.8 respectively). The company's 2018-2023 ASP also showed an upward trend, gradually increasing from $25.8 to $29.7. The company's labor efficiency in 2022 was 269,000 yuan/person, which is also the highest in the industry (in 2022, Fengtai/Yuyuan/Huali/Yuqi were 15.9/20.4/13.2/135,000 yuan/person, respectively).
Revenue picked up significantly in 23Q4, and the growth rate was significantly superior to other **** footwear manufacturers. 23Q4's manufacturing business revenue was US$380 million, up 13.5% year on year, with shipments of 13.2 million pairs, up 10.9% year on year. The Q4 revenue side growth was significantly superior to the performance of other **** footwear manufacturers (23Q4 Fengtai/Yu Yuan (manufacturing) /Yuqi/Zhiqiang revenue growth rate: -1.4%/-9.5%/-40.8%/-16.8%), we think it was mainly due to the company's balance of order categories (sports/luxury/fashion/leisure revenue share 42.6%/8.3%/25.5% /23.6 %), optimization of the product and customer portfolio, leading to a significant restoration of shipment volume and an increase in average selling price.
Order repair and production capacity structure optimization will continue to help increase profit levels and stabilize dividends to maintain high dividends.
We believe that with the gradual removal of inventory in various categories, the company's orders are expected to be further repaired and capacity utilization will continue to increase. Furthermore, in 2022, the company's production capacity in China, Vietnam, and the rest of Asia was 28%/46%/26% (2019:45% in China/55% in other regions). With the continuous optimization of the production capacity structure (2023 planning capacity in China/Vietnam/other regions: 24%/50%/26%), the profit level is expected to increase further. The company maintained a dividend ratio of at least 70% in 2015-2022 (excluding the impact of the 2020 pandemic). Assuming that the 2023 dividend ratio remains at 75% in 2022, the dividend rate is expected to reach 8.6%.
Profit forecasting and valuation. We expect the company's net profit for 2023-2025 to be US$1.25/1.39/155 million, an increase of 6.1%/10.8%/11.6% year-on-year. The 2024 PE valuation is 10-11X, converted to HK$7.82, corresponding to a reasonable value range of HK$13.62-14.99 per share, covering the first time to give it a “superior to the market” rating.
Risk warning. Customer orders have declined, raw materials have fluctuated sharply, labor costs have risen, exchange rates have fluctuated, and tariffs and trade policies have changed.