Cabin Apparel is a leading fashion casual menswear company in China. It mainly designs, markets and sells men's clothing, footwear and accessories for two brands, Cabbeen Lifestyle and Cabbeen Urban. According to Frost? According to Sullivan's data, based on retail revenue in 2012, the group accounted for about 2.7% of the fashion casual menswear market. The Cabbeen Lifestyle brand mainly targets young male consumers; the Cabbeen Urban brand mainly targets young male professionals in urban areas; Cabbeen Chic, a high-end subsidiary brand under the Cabbeen Lifestyle brand, mainly targets male consumers involved in industries related to fashion, entertainment, and art. As far as the sales network is concerned, the Group's distributors and their second-tier distributors have established a nationwide retail network for the Group's products in China. As of 2013/6/30, the Group had 36 distributors and 387 second-tier distributors, operating a total of 913 retail stores under the Group's brand in prime locations in more than 300 cities in 30 provinces of China.

We recommend investors speculatively purchase this stock.

Company advantages

(1) Group is China's leading designer brand. According to Frost? According to Sullivan's data, based on retail revenue in 2012, the group accounted for about 2.7% of the fashion casual menswear market. In April 2013, the China Fashion Designers Association (an organization of designers, scholars and experts in the fashion design industry in China) confirmed that the Cabbean brand is China's leading clothing designer brand based on factors including retail revenue, number of retail stores, and brand awareness; (2) has strong design and R&D capabilities; and (3) has a business model that is easy to expand on a large scale and can effectively manage distributors. The Group mainly sells products to distributors in a wholesale manner, enabling the Group to focus on brand promotion, design, marketing, quality control and management of relationships with suppliers, distributors and end customers, improving the efficiency of our use of capital, human and other resources, and enabling us to obtain a higher return on assets; (4) customer-centered sales management and a loyal end customer base. According to Frost? According to a “Brand Loyalty and Returning Customers” survey conducted by Sullivan in 2012, the group ranked second among fashion casual menswear brands in China. As of 2013/6/30, the group has over 70,000 active Gold VIP members and 90,000 Silver VIP members.

Industry Overview

Fashionable casual menswear is men's clothing designed for casual and informal occasions. It combines the brand's unique style with the latest fashion design to highlight individual taste. The fashion casual menswear market recorded strong growth from 2007 to 2012 as China's economy grew rapidly, the purchasing power of urban middle class consumers in China's cities increased, fashion sense increased, brand awareness increased, and demand for clothing quality increased. According to Frost? According to Sullivan's report, based on retail revenue, the size of China's fashion, casual menswear market increased from RMB 37.7 billion in 2007 to about RMB 77.3 billion in 2012, with a compound annual growth rate of about 15.4%. Frost? Sullivan further predicted that the estimated retail value of fashion casual menswear in China would reach about RMB 151.1 billion in 2016, increasing at a compound annual growth rate of about 18.3% over the 2012-2016 period.

Since China's fashion, casual menswear market is still in the mid-term growth stage, the market is highly fragmented. According to Frost? Sullivan reports that the top ten brands accounted for only 25.1% of the market in terms of retail value in 2012. Only eight of these brands were able to achieve retail revenue of over RMB 1 billion, due to the limited design and manufacturing capacity of most fashion and casual menswear suppliers. In 2012, the top five brands in the Chinese fashion, casual menswear market were Jack Jones, Zuo An, Cabbeen, GXG, and Mark Huffey. Except Jack Jones, all were domestic brands.

According to Frost? Sullivan reports that as competition in the Chinese fashion, casual menswear market is becoming more and more intense, outstanding brand style and sensitivity to clothing trends are becoming more and more important to brand owners. Most top fashion brands have adopted the designer brand model. The designer brand is the responsibility of the core designer, and it is easier to form a unique brand style, which is appreciated by consumers in the fashion casual wear market. Changes in work environment culture and lifestyle have also helped promote the integration of business and leisure, making consumers less sensitive to prices and increasing demand for personalization and expression of individuality. According to Frost? Sullivan reports that based on current market trends, domestic brand owners will continue to compete in terms of brand style, design ability, market positioning, distribution channels, and consumer brand loyalty. Brand awareness is a decisive factor in increasing market share.

Profitability and financial figures

Based on historical records for the past 3 years, the group's revenue increased from RMB 292.4 million in fiscal year 2010 to RMB 940.1 million in fiscal year 2012, with a compound annual growth rate of 79.3%; net profit grew from RMB 7.0 million in fiscal year 2010 to RMB 130.2 million in fiscal year 2012. The rapid increase in revenue and net profit during the record period was mainly due to a sharp increase in the number of group stores and the average selling price of products. The number of Group stores soared from 637 in 2010 to 965 in 2011 and declined slightly to 958 in 2012; the average sales price of products soared from RMB 101 in 2010 to RMB 133 in 2011, and further increased to RMB 162 in 2012, driving the Group's gross margin to soar from 21.2% in 2010 to 40.5% in 2012.

Fund-raising purposes

The proceeds from this fund-raising of HK$354.3 million (calculated at a median sale price of HK$2.53 per share) will be used for the following purposes: approximately 40% or HK$141.7 million, which is expected to be used mainly to further enhance design and R&D capabilities, including the purchase of land and the construction of a new building in Guangzhou, Guangdong Province, as well as the simultaneous acquisition of fixed assets and technical equipment for the design R&D center and the new design R&D center currently in use; approximately 20% or HK$70.9 million, which is expected to be used for major brands such as mutual marketing, such as mutual marketing, etc. Advertise in other new media, and reach out to VIPs Customers provide additional value-added services to promote the VIP program; approximately 20%, or HK$70.9 million, is expected to be used mainly to set up additional self-operated retail stores. Currently, the Group plans to open 15 to 30 self-operated retail stores from 2013 to the end of 2014, and a total of no more than 50 self-operated retail stores by the end of 2017; approximately 10% or HK$35.4 million, which is expected to be mainly used to improve and enhance the ERP system; and the remaining amount is approximately 10% or HK$35.4 million, which is expected to be used for working capital and general corporate purposes.

valuations

The Group estimates that the net profit for fiscal year 2013 will be no less than RMB 189.1 million. Based on this figure, the Group's forecast price-earnings ratio for the 2013 fiscal year is about 6.6 times 8.2 times. The estimated price-earnings ratios of peers such as Libang (891.HK) and China Lilang (1234.HK) are about 13.7 times and 9.3 times, which is higher than the Group's valuation level. Judging from past performance records, the group's development process was similar to that of most of its peers. It was through third party distributors to rapidly expand the sales network with lower capital expenses, and also outsourced production, focusing on design and promotion. However, judging from the experience of the national clothing retail industry over the past few years, this model makes it difficult for companies to control inventory turnover; since they have not reached end consumers, most companies have not been able to respond to market conditions in a timely manner. We believe that the current competition in China's clothing retail industry is fierce, and the model of opening a store alone can no longer guarantee steady growth; brand building and expansion is the key to future competition. Since the majority shareholder of the Group is its chief designer, we believe that the Group has a relative advantage in this area, but future development will still be determined by consumers' acceptance of its products. As mentioned in the financial figures section above, the Group's past growth is mainly due to the expansion of the sales network, so we think it cannot be used as a reference for predicting future profits. However, the Group's valuation is somewhat compromised compared to the same industry, and we think its valuation is reasonable. Investors are advised to speculatively purchase the stock.

Risk Factors

(1) The Group relies heavily on the Cabbean brand, and failure to successfully maintain or promote the brand may have significant adverse effects on performance and prospects; (2) it mainly relies on third party distributors to sell products to end customers. The Group's sales to the five major distributors in 2012 accounted for 35.9% of revenue. If distributors end or do not continue distribution negotiations or distributors' procurement amounts are drastically reduced, the group's business and prospects may be significantly adversely affected; (3) the group outsources the production of all products, and product supply may be interrupted; (4) the increase in the cost of China's outsourcing of production, raw materials and labor may have a significant adverse impact on business and profitability; (5) Facing the increasing competition of online menswear retailers from China; (6) the group has rapidly expanded its retail coverage of products in recent years, As of 2013/6/30, the group distribution network consists of 412 street stores, It consists of 386 department stores, 115 shopping malls and 2 self-operated retail stores. Failure to effectively manage expansion plans may result in significant adverse effects on business and operating results.