Pou Sheng International (3813 HK)

Transcription

1 Pou Sheng International (3813 HK) Continue to grow along with intl brands Rating Maintain BUY Target price HK$2.50 From HK$2.00 In-line 1Q16 result; Increased SG&A pave way for future growth, GPM continue to soar on lower retail discounts and healthy channel inventory Pou Sheng s (PS) 1Q16 result was in-line with our estimates with both revenue and net profit accounted for 24% and 24.6% of our FY16E estimates. The group s GPM soared 400bps Yoy to 34.9%, thanks to healthy channel inventory (~4 months) and hence a better retail discount (~20% off in 1Q16 vs % in 2014 and early 2015) and. The SG&A ratio came in at 29.4% of sales in 1Q16 (vs.29.9% in FY15), which was driven by new store openings in 1Q16 (559 vs 325 in 1Q16). We continue to expect PS s SG&A ratio to remain at 29-30% of sales in FY16E/17E driven by international brands expansion plan in China. 4M16 a good start, major sports events expected to drive growth In 4M16, PS s total revenue grew by ~12.1% Yoy (in RMB terms), which we believe has set a good foundation for FY16E, and we expect both the revenue and SSSG would pick up towards mid-2q16 and 3Q16, as Euro Football Championship and Olympics will be held in France and Brazil in the summer. As industry fundamentals remains healthy, we expect PS sales to grow at low-mid teens (on currency neutral basis) is still achievable in FY16E/17E and we also continue see a room for lower retail discounts (15-20% off) hence benefit both SSSG (on currency neutral basis) and GPM. China s strong demand for Nike and Adidas products; New brand partnership continue to drive growth Nike and Adidas currently accounts for ~80% of Pou Sheng s revenue, and we expect both companies would continue deliver at least mid-teens growth in revenue in the medium term which will be driven by i) new store openings ; ii) revamp plan with distributors to enhance store operating efficiency, iii) well-received response of leisure sportswear as well as functional sportswear. Meanwhile, we continue to believe new brand partnerships with Sketchers, Under Armour (UA US) and GEOX etc would also help through their increasing presence in China. Trading at 12.9x FY16E PE, Maintain Buy to ride on international brands expansion in China and improving operating efficiency We raised PS s FY16E/17E EPS by 21.8% and 17.6% respectively, led by GPM expansion through lower retail discount and new product sales. The rise in GPM will more than compensate the high SG&A ratio during this period (29-30% of sales). We believe the higher SG&A ratio reflects international brands confidence in China sports market, which would facilitate future growth in the long run. With earnings expected to grow at 5% CAGR in FY15-17E, its FY16E 12.9x P/E (~16.2% discount to international peers) still looks attractive to us. We maintain Pou Sheng s rating at BUY and raise PS s TP from HK$2.00 to HK$2.50 based on 1x forward PE (par to international peers average) and FY16E EPS. Current price HK$2.15 Upside.16.1% 1 June 2016 Hayman Chiu hayman.chiu@cinda.com.hk (852) Trading Data 52-Week Range (HK$) 3 Mth Avg Daily Vol (m) No of Shares (m) Market Cap (HK$m) Major Shareholders (%) Auditors Result Due Company description 2.23/ , ,507.6 Yue Yuen (61.27%) Deloitte 1H16:Aug 2016 Established in 1989 and listed in June 2008, Pou Sheng (PS) is one of the leading sportswear distributors in China with ~25% market share. In addition to Nike and Adidas, the company adopts multi-brand strategy and distributes Puma, Converse, Under Armour and PONY products etc. As of December 2015, Pou Sheng s retail network comprises of 7,836 stores, in which ~63% are directly operated stores. Price Chart Sources: Bloomberg, CIRL Page 1 / 7

2 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 5Q12 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 FY14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Exhibit 1: Earnings Forecast Revision for FY16E & FY17E earnings FY16 (old) FY16 (new) Diff FY17 (old) FY17 (new) Diff Revenue 2,576 2, % 2,885 2, % GP % % GPM 33.9% 3% 110bps 34.4% 35.5% 110bps Net Profit % % EPS % % Source: CIRL estimates Exhibit 2:Pou Sheng s SSSG outpaced Belle s in last 4 quarters on currency neutral basis (2.0) (4.0) (1.0) (1.0) (2.0) Pou Sheng's SSSG (Yoy%, Year ended 31 Dec) (2.0) (4.0) (2.4) Belle's sportswear SSSG (Yoy%) Source: Company data, CIRL Exhibit 3: Pou Sheng s GPM rose for 3 consecutive quarters on lower retail discounts Source: Company data, CIRL Pou Sheng's GPM (%) Page 2 / 7

3 Exhibit 4: Adidas revenue and Nike s order in China shows upward momentum () (6.0) (7.0) (3.0) Adidas () Nike Sources: Company Data, CIRL Exhibit 5: Direct operation currently accounts for >60% of Pou Sheng s store counts 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2,276 2,263 2,689 2,893 3,659 3,665 4,263 4,943 FY12 FY13 FY14 FY15 Source: Company data, CIRL Direct operation Franchised Exhibit 6: Grand opening of the first GEOX brand concept store in Qingdao in end April 2016 Sources: Company Data Page 3 / 7

4 Exhibit 7: Pou Sheng s new sales channel Eslite Spectrm YY multi-brand store opened in Suzhou in November 2015 Sources: Company Data Exhibit 8: Pou Sheng s new multi-brand stores Sources: Company Data Page 4 / 7

5 Exhibit 9: Financial summary Income statement Cash flow Year to Dec (US$ Mn) FY13A FY14A FY15A FY16E FY17E Year to Dec (US$ Mn) FY13A FY14A FY15A FY16E FY17E Revenue 1,777 1,981 2,300 2,530 2,783 Pre-tax profit (31) Gross profit (reported) Taxes paid (9) (17) (14) (15) (18) EBITDA Depreciation & amortization Depreciation Associates & Others EBIT (12) CFO bef. WC change Net interest income (exp.) (12) (6) (6) (6) (7) Change in working cap (34) (10) (56) Associates (6) (4) (1) (1) (1) Cashflow from operation Exceptionals/others CAPEX (19) (28) (47) (50) (50) Profit before tax (31) Free cash flow Tax expenses (8) (14) (24) (40) (49) Dividends Minority interest 0 2 (2) (2) (2) Balance sheet adj. (24) (29) (23) (111) (102) Net profit (38) Sharse issued 0 (1) Dividends Others Diluted EPS (RMB) Net cash flow (5) Net cash (debt) start (199) (204) (153) (26) 9 Balance sheet Net cash (debt) at year-end Year to Dec (US$ Mn) FY13A FY14A FY15A FY16E FY17E Cash & equiv Ratios Trade receivables Year to Dec (US$ Mn) FY13A FY14A FY15A FY16E FY17E Other receivables Growth rate (%) Inventories Revenue -18.6% 11.4% 16.1% % % Other current assets EBITDA -21.8% 109.5% 98.1% 52.8% 20.2% Fixed assets EBIT -5% % 200.4% 69.7% 23.3% Intangible assets Net profit -43.4% % % 74.8% 24.4% Investment, associates etc Fully diluted EPS -53.4% % % 76.2% 25.4% Total assets 1,460 1,328 1, Margins (%) Gross margin (reported) 28.9% 29.3% 33.3% 3% 35.5% Account payables EBITDA 1.7% 3.2% 5.4% 7.5% 8.2% Other payables EBIT -0.7% 1.6% 4.1% 6.3% 7.0% Short-term debt Net margin -2.2% 0.2% 2.8% 4.5% % Other current liabs Other ratios Long-term debts ROE (%) -4.2% 0.5% 7.4% 12.1% 13.4% Deferred tax and others ROA (%) -2.6% 0.3% 4.9% 8.3% 9.4% Other long-term liabs Net gearing (%) 22.7% 17.5% 3.0% -0.9% -4.3% Total liabilities Interest coverage (x) Receivables days Share capital Payables days Reserves Inventory days Shareholders' equity Effective tax rate (%) 25.6% -68.1% -27.6% -26.5% -26.0% Minorities Total equity Net cash (debt) Sources: Company Data, CIRL estimates Page 5 / 7

6 Exhibit 10: Peers comparison bloomberg Mkt Cap Price Share Price Movement (%) PER (x) Yield (%) code (HKD mn) (HKD) 3M YTD FY13 FY14 FY15 FY16E FY17E FY13 FY14 FY15 FY16E FY17E PRC - Sportswear peers LI NING CO LTD 2331 HK 5, (8.2) (25.7) % % % % 1.6% ANTA SPORTS PROD 2020 HK 42, (3.8) (20.6) % 3.6% 4.0% 4.7% 8.2% XTEP INTL 1368 HK 8, (1.4) % 4.1% 5.1% 5.8% 6.4% 361 DEGREES 1361 HK 5, (14.7) % 4.0% 4.8% 5.6% 6.3% FLYKE INTERNATIO 1998 HK % 3.2% % % % HOSA INTL LTD 2200 HK 4, (8.7) (8.3) % % % % % MEIKE INTERNATIO 953 HK 1, (2.7) % 4.1% 4.0% 4.3% 4.6% YUE YUEN IND 551 HK 47, % % % % % Average 13, (4.8) % 3.6% 4.5% 5.1% 5.4% POU SHENG INTL 3813 HK 11, % % % % % International - Sportswear peers NIKE INC -CL B NKE US 735, (8.8) (10.1) % 0.7% 0.8% 1.0% 1.2% ADIDAS AG ADS GR 209,636 1, % 1.3% 1.6% 1.8% 2.0% UNDER ARMOUR-A UA US 122, (12.3) (8.9) % % % % % LULULEMON ATH LULU US 69, % % % % % PUMA SE PUM GR 27,419 1, % 0.3% 0.3% 0.3% 0.4% ASICS CORP 7936 JP 34, (1.3) % 0.8% 1.0% 1.2% 1.2% MIZUNO CORP 8022 JP 4, (10.2) % 2.1% 1.7% 1.8% 1.9% COLUMBIA SPORTSW COLM US 28, (10.3) % 0.9% 1.0% 1.1% 1.2% Average 71, % 1.0% 1.1% 1.2% 1.3% POU SHENG INTL 3813 HK 11, % % % % % Sportswear distributors BELLE INTL 1880 HK 37, (11.3) (22.9) % 4.2% 11.8% 7.7% 7.2% ABC-MART INC 2670 JP 41, % 0.8% 1.1% 1.7% 1.9% CALERES INC CAL US 8, (10.3) (5.2) % 1.1% 1.1% 1.1% 1.1% FOOT LOCKER INC FL US 58, (11.9) (15.4) % 1.4% 1.6% 1.8% 2.0% DSW INC-CL A DSW US 13, (19.9) (12.0) % 2.3% 3.5% 3.8% 3.9% GENESCO INC GCO US 10, (0.9) % % % % % FINISH LINE-A FINL US 5, (0.5) % 1.6% 1.8% 2.0% 2.2% DICK'S SPORTING DKS US 38, % 1.1% 1.2% 1.3% 1.4% JD SPORTS FASHIO JD/ LN 28, % 2.5% 3.0% 3.6% 3.9% Average 25,578 (2.4) % 1.9% 1.9% 2.9% 3.0% POU SHENG INTL 3813 HK 11, % % % % % Source: Bloomberg, CIRL estimates Exhibit 11: Pou Sheng s 12 month Forward P/E Ratio mths Forward P/E avg. -1std. +1std std. 0 Dec-14 Jun-15 Dec-15 Source: Bloomberg, CIRL Risk Factors Downside risks include: 1) Nike and Adidas sales slowdown in China; 2) excess inventory in distribution channels; 3) rising overheads; 4) increasing competition from international and PRC peers; and 5) RMB depreciation Page 6 / 7

7 Rating Policy Stock Rating Sector Rating Rating Definition Buy Outperform HSI by 15% Neutral Between -15% ~ 15% of the HSI Sell Underperform HSI by -15% Accumulate Outperform HSI by 10% Neutral Between -10% ~ 10% of the HSI Reduce Underperform HSI by -10% Analysts List Hayman Chiu Research Director (852) hayman.chiu@cinda.com.hk Kenneth Li Senior Research Analyst (852) kenneth.li@cinda.com.hk Lewis Pang Senior Research Analyst (852) lewis.pang@cinda.com.hk Wilfred Yuen Research Analyst (852) wilfred.yuen@cinda.com.hk Chloe Chan Research Analyst (852) chloe.chan@cinda.com.hk Johnny Yum Research Assistant (852) johnny.yum@cinda.com.hk Analyst Certification I, Hayman Chiu, Research Director of Cinda International Research Limited., hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note. Disclaimer This report has been prepared by the Cinda International Research Limited. Although the information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International Research Limited cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so may contain uncertainty. Any opinions expressed in this report are subject to change without notice. The report is published solely for information purposes, and it does not constitute any advertisement and should not be construed as an offer to buy or sell securities. Cinda International Research Limited will not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. This document is for the use of intended recipients only, the whole or a part of this report should not be reproduced to others. Page 7 / 7