Investment highlights: Without further ado, it was founded in 2011 and is a leading apparel platform seller in the North American market. It was listed on November 11, 2022, and is the “first cross-border footwear e-commerce stock”. Based on the 2021 GMV, Zibu said it ranked third among all platform sellers in China's cross-border B2C e-commerce footwear and apparel market, ranking first in North America. The total revenue for 2018-2021 was 21.2%, the total revenue of 22H1 was 1.3 billion yuan, and the net profit was about 60 million yuan.

Cross-border e-commerce space for shoes and clothing is vast, and sellers on the Amazon platform are developing strongly. Since 2020, the country has increased its support for cross-border e-commerce. The epidemic has catalyzed the rapid development of the industry. In 2021, China's cross-border B2C e-commerce export market was 2.7 trillion yuan. By market, the North American market is the largest overseas market, and there is plenty of room for improvement in the penetration rate of European countries. By category, the footwear category is the largest and fastest growing industry in the future. The market size is 75.3 billion yuan in 2021, and the CAGR for 2021-2026 is expected to be 19.5%. Platform sellers are the main players in the cross-border e-commerce export market. Their share of B2C e-commerce for cross-border exports in China is 75%, and the Amazon e-commerce platform is the most important core channel. GMV accounts for 70% of the top 4 third-party cross-border e-commerce platforms, far ahead in traffic. It is expected that the sales scale of footwear and clothing products on the Amazon platform will reach 20.7% in 2021-2026.

What did Zubu Speak stand out for?

It goes without saying that it has strong digital capabilities for the entire chain. With the advantages of popular category brands+refined operation+first-mover traffic, it grasps the traffic dividend of e-commerce platforms, and forms a virtuous cycle of continuous incubation of popular products.

Product features: The product style is mainly based on micro-innovative basic women's clothing. The number of SPUs is rich. It targets mid-range customers and provides very competitive prices. The company adopts a multi-brand operating model and focuses on creating hot products. As of mid-2022, it has incubated more than 300 brands, including 87 popular brands, and created 6,473 popular products. Sales of popular products are highly sustainable, with a life cycle of up to 3-4 years.

Product design: Data-oriented independent design ability is an unspeakable core competency. Needless to say, more than 90% of our products are independently designed, and we can design and launch more than 10,000 new clothing styles every year. Based on strong big data analysis capabilities and a product design database of over 120,000 samples, we have maintained a rapid and high-quality promotion rhythm+continuous and rich product iteration, which has enabled Zibu to continue to successfully create popular products.

Supply chain: The supply chain has excellent integration capabilities. On the basis of digital management, the model of “rapid countertesting of market response for small orders of new products+large-scale stabilization of production pressure reduction costs for explosive products” is adopted. The company has reached stable cooperation with close to 1,000 suppliers, including 37 exclusive suppliers dedicated to small-order rapid reverse production; under the small-order quick reverse model, the time from initial sample production to launch of the first batch of products can be reduced to 7-10 days, and can be delivered to customers in as little as 15 days.

Channel: Third-party e-commerce platforms are the most important sales channel. Since 2019, the strategic focus has shifted to the Amazon platform, with 22H1 accounting for 91% of Amazon's revenue. At the same time, in 2018, it began to strategically develop its own website to cultivate customer loyalty, accounting for 6% of revenue. The Amazon platform brings unsteady traffic input, longer product lifecycles, and higher gross profit margins.

Fine operation: The key to Amazon's stable traffic is to seek top rankings and form a virtuous cycle of sales and traffic. The management team has rich experience in operating multiple platforms at home and abroad. They are familiar with e-commerce style of play, can quickly complete the transfer and construction of sales systems, and explore Amazon's complex traffic distribution mechanism to carry out effective precision marketing to stabilize first-mover traffic advantages for popular products.

Digitalization of the whole chain: The company's large-scale underlying logic relies on the ability to connect multiple links in the industrial chain, including supply chain, logistics, platforms, etc. Net IPO capital raised HK$200 million, of which approximately 38% was used to upgrade the brand matrix and enter the European market; 29% was used to continue to integrate supply chain resources and transfer the supply chain layout to Southeast Asia; and 23% was used to establish large-scale proprietary websites.

Our opinion: This year is an investment year for new products. It is expected that 7,000+ new products will be launched within the year, and the year after next will return to the normal pace of promotion of 4,000-5000 SPUs. It is expected that the next year will gradually see results in cultivating popular products, which will also help to recover profit margins. We expect the company's revenue for 22/23/24 to be $31.0/38.1/457 billion respectively, with a year-on-year ratio of +32.0%/+23.0%/+20.0%; net profit of $1.5/27/320 million, respectively, of -24.5%/+76.6%/+21.3% year-on-year respectively. For the first time, it was covered for the “prudent increase” rating. The target price was HK$8.94, corresponding to the predicted valuation of EPS 15x PE in 2023.

Risk warning: risk of inventory backlog, risk of excessive concentration of sales channels, consumer preferences seeking changes, recurrent epidemics