China's custom clothing industry has developed rapidly in recent years, and there is plenty of room for future growth. The average annual compound growth in 13-17 reached 22.9%, and we expect the total size of the custom clothing industry to reach about 200 billion yuan in 2020. At the same time, we target overseas markets. The popularity rate of custom-made clothing abroad is high, China's per capita consumption is low, and there is plenty of room for domestic penetration. Furthermore, due to the rapid growth in popular demand for customized clothing, large-scale personalized clothing manufacturers have a lot of room for development.
From the perspective of the supply chain, the guarantee of enterprise efficiency is that marginal costs decrease after large-scale orders, and large-scale personalized customization can be achieved. So how to achieve large-scale orders is a question we think companies need to think about. We've always emphasized the value and opportunities in the era of decentralized traffic. Currently, the consumption behavior of major consumers has changed. In the era of decentralized traffic, social media and KOLs have a deeper influence on the purchasing decisions of the younger generation of consumers; every KOL has a personality and target circle, which can attract attention to this circle of fans and agree with their own set of fans.
In the clothing customization industry, if large-scale personalized clothing companies can seize this trend and opportunity, cooperate with celebrities with the right people, and use KOLs to influence the purchasing decisions of the highly loyal fan groups behind them and generate purchases in the “focus on the economy” era, then the future value and space of the enterprise will greatly increase. If custom clothing companies can use their flexible supply chains and intelligent manufacturing capabilities, cooperate with KOL celebrities and other opinion leaders to form exclusive custom models and cooperative funds, and use the fan base behind them to quickly generate large-scale orders to help enterprises quickly expand scale, thereby reducing marginal costs and improving enterprise profitability.
Cool Smart is a representative enterprise for large-scale personalized clothing production. It is mainly engaged in the production and sale of personalized clothing; at the same time, using its own experience in upgrading in the digital field, it has come up with a set of transformation and upgrading plans for traditional enterprises, which can provide digital customized factory rectification plans and technical consulting services for traditional domestic manufacturing enterprises. Cool directly connects consumers with producers, designers, etc. through the Internet. Personalized clothing is customized starting with 1 piece. The traditional clothing customization production cycle is 20-50 working days, and Cool has been shortened to 7 working days. Currently, the company has the industrial mass production capacity of 420,000 sets of custom suit products and 220,000 custom shirts every year. It can meet the standard of “one person, one edition, one garment, one style, one piece is first-class”.
The company drives large-scale personalized customization through C2M orders, data drives intelligent production and industrial chain collaboration to improve operational efficiency. The company independently developed an online customized direct sales C2M platform, which focuses on customer needs, is order-driven production, and uses technical means such as the Internet and big data to produce personalized customized products that meet the different requirements of customers in an industrialized manner. We believe that companies that have the capacity to manufacture personalized clothing on a large scale can use their high-quality supply chain to cooperate with opinion leaders such as KOLs to further develop. At the same time, in the future, the company plans to implement a cross-category online customized C2M direct sales platform to expand future development space.
First coverage, giving a “buy” rating. As a leading large-scale personalized clothing manufacturer in the industry, the company has a certain competitive advantage in the rapid development of the industry. We expect the company to achieve revenue of 626/671/793 million yuan in 2020-2022, an increase of 16.9%, 7.18%, and 18.3% over the previous year; to achieve net profit of 91.17 million yuan/94.18 million yuan/114 million yuan over the previous year, an increase of 32.76%, 3.3% and 20.89% over the previous year. EPS is expected to be 0.38/0.39/0.47 yuan in 2020-2022. Considering the average valuation of comparable companies in the same industry, we gave the company 30 times PE in 2020, corresponding target price of 11.40 yuan. The first coverage gave a “buy” rating.
Risk warning: Risk of losing orders from major customers, the impact of the epidemic exceeding expectations and affecting the company's order situation, investment projects yielded benefits less quickly than expected, and terminal consumption was weak.
