The epidemic in the past three years led to the rapid differentiation of the men's wear industry, the growth of high-end brands and high quality-to-price brands against the trend, the sales of mid-range brands under pressure, and the substantial closure of small and medium-sized men's clothing brands. Hailan House as a leading domestic menswear brand, products maintain high performance-to-price advantage while actively improving quality and sense of technology; channel direct business model to improve operational efficiency, store upgrading at the same time the net opening of stores against the trend; marketing younger and positive innovation. Current market capitalization corresponds to 23PE 9X, and highly recommended ratings are maintained in view of the resilience of performance recovery from 2023 to 2024.
Domestic men's wear leader, the performance increased steadily before the epidemic. Hailan House was founded in 2002 and listed backdoor in 2014. The company has brands such as men's wear, women's wear, children's wear, professional wear and home furnishings. Build a "quasi-direct" channel management platform, and establish a stable cooperative relationship with suppliers, with a sound distribution mechanism, while ensuring the growth of the number and performance of stores, profitability is at the industry-leading level.
The CAGR of operating income and net profit of the company in 2014-2019 was 12%. Affected by the epidemic in the first three quarters of 2020-2022, the revenue scale was 17.959 billion, 20.188 billion and 13.675 billion, respectively, compared with the same period last year. 2022Q3 has 7841 stores at the end of the year.
The epidemic accelerates the differentiation of men's clothing brands, and small and medium-sized brands are cleared quickly. The overall demand for menswear is stable, and the impact of the epidemic on high-income people is limited, but it will lead to a decline in the purchasing power of middle-income groups. The corresponding brands can see three years of continuous growth in the epidemic of high-end or luxury goods, and the performance of high-quality / price-to-brand brands is stable (Uniqlo and Highland House continued to increase during the epidemic), and sales of mid-range menswear brands are under pressure (Jack Jones, Slade, GXG, etc.). At the same time, many small and medium-sized men's wear brands continue to close their stores (small and medium-sized business men's wear brands such as Li Brand, Jinba Men's Wear, Romon and other small and medium-sized business men's wear brands). The optimization of industry structure provides an opportunity for the expansion of brand channels with high quality-to-price ratio represented by Hailan House.
Actively seek change, product low rate & quality upgrading, quasi-direct business model to improve business efficiency, younger digital marketing to reshape the brand image.
1) in terms of products, the Hailan brand has maintained a low price increase rate and continued to strengthen the research and development of fabrics with suppliers, and the number of patents has increased from 256 in 2019 to 399 in 2022H1. A series of fabrics such as six-dimensional elasticity, three-proof and ice-cool cotton have been launched one after another to enhance the functionality of the products.
2) opening a store against the trend & upgrading the channel format: the original quasi-direct management model shortens the channel level and improves operational efficiency, and the number of stores increases from 3348 in 2014 to 5781 at the end of 2022Q3.
At the end of 2020-2022Q3 opened a total of 183 stores after other menswear brands closed their stores. The proportion of direct stores increased from 8.8% in 2020 to 15.5% at the end of 2022Q3, and continued to optimize the location and format of stores in the second-and third-tier core business areas, adding more department stores and shopping malls. Online cross-channel operation ability is strong, revenue accounts for about 15%, and there is a lot of room for improvement.
3) rejuvenating digital marketing to reshape brand image: Hailan House continues to promote the transformation of brand rejuvenation through star endorsement, flow delivery, innovative marketing and other ways. Sign Jay Chou, Lin Gengxin, Xu Weizhou and other national stars and flow stars, and sponsor popular variety shows to enhance brand exposure and awareness.
Profit forecast and investment advice: the company's net profit from 2022 to 2024 is expected to be 2.121 billion yuan, 2.526 billion yuan and 2.916 billion yuan, respectively, compared with the same period last year. Corresponding to 23PE9X, valuations are historically low and highly recommended ratings are maintained.
Risk hints: the risk that the recovery of offline passenger flow is not as expected; the risk that consumers' purchasing power recovers slowly and the sales growth of the Hailan brand is less than expected; the risk of the new brand OVV, boys and girls, and Hailan's preferred training period becoming longer; the risk of online flow costs increasing the risk of eroding profit margins; the risk of increasing inventory pressure.