【行业研究报告】361度-Star products & sponsorships-led turnaround

PLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEPLEASEREADTHEANALYSTCERTIFICATIONANDIMPORTANTDISCLOSURESONLASTPAGEMOREREPORTSFROMBLOOMBERG:RESPCMBRORhttp://www.cmbi.com.hk1MN13Mar2024CMBInternationalGlobalMarkets|EquityResearch|Initiation361Degrees(1361HK)Starproducts&sponsorships-ledturnaroundWeinitiateBUYon361DegreeswithTPofHK$6.23basedon10xFY24EP/E.Weforecast16%/20%sales/NPCAGRsinFY22-25Evs7%/20%duringFY19-22,drivenbymajorimprovementsin:1)starproductsandendorsementquality,2)offlinestoreimagesande-commercestrategy,and3)kidsbusiness.Notedthat361Degrees’YTDreturnswas25%,thehighestamongallpeers.361Degreesisthe4th-largestdomesticsportswearbrandsinChina.361Degrees(1361HK)isthe4th-largestdomesticsportswearcompany,witha3.1%marketshareinChinain2022,estimatedbyEuromonitor.Ithadastorenetworkofaround5,480adultstoresand2,288kidsstoresinFY22,whichgeneratedsalesandnetprofitofaboutRMB7.0bnandRMB747mn.Thebrandhassuccessfullyturnedaround,thankstorebranding.Wefind361Degrees’2019rebrandingstrategysuccessful.Since2Q22,itsretailsalesgrowthhasstartedtooutperformwithanimprovedsell-throughrate.NotonlyitsinventoryandreceivabledayshaveimprovedsignificantlysinceFY18,storeexpansionhasstartedtoresumesinceFY20.Moreover,itse-commerceandkidsbusinessesaregrowingatanevenfasterrate.Solidproductupgradesaroundrunningandbasketball.ByincreasingitsR&DexpenseratioandfocusingonasmallernumberofSKUs,thestarproductlauncheshavebeenhighlysuccessful.Hence,theASPforfootwear/apparelmanagedtogrowbya5.2%/4.8%CAGRduringFY19-22.Goingforward,wecontinuetobeupbeataboutthelaunchesofmoreinnovativerunningshoesandbasketballseriesbuiltaroundNikolaJokic.Upgradingits“professional”imageandbuildastrongertiewithyoungcustomers.ThesponsorshipfortheAsianGameswasfairlyinfluential,whichhaseffectivelyshapeditsprofessionalimageandshowcaseditsnewandinnovativeproducts.Andtheself-ownedsportsevents“3#Track/三号赛道”and“LightUp/触地即燃”arealsohighlyrewarding,astheyhavehelpedthebrandbuildastrongbondwithtargetedcustomers.Weforeseea16%salesand20%NPCAGRduringFY22-25E.Keydriversare:1)solidsalesfromnewproducts(aidedbyupgradesindesignandbrandequity),2)increasesin9th-genstores,whichhasasharperstoreimage,largerareaandlowercapex,3)robuste-commercesalesgrowth,duetoexcellentA&Pandexclusiveproductstrategy,4)strongkidsbusinessgrowthand5)greatresilienceunderconsumptiondowngrades.InitiatewithBUYandTPofHK$6.23,becausewefinditsturnaroundrathersolid,hencea16%salesand20%NPCAGRshouldbeachievableinFY22-25E.Wethinkcurrentvaluationof7.0xFY24EP/Eisstillattractive,asithasa29%discounttoChinasportswearaverage.OurTPisbasedon10xFY24EP/E,about1s.d.higherthanits5yearsaverageof7x,roughlyatparwithpeers’average.Notethat45%ofitsmarketcapisnetcash.EarningsSummary(YE31Dec)FY21AFY22AFY23EFY24EFY25ERevenue(RMBmn)5,9336,9618,3509,59010,972YoYgrowth(%)15.717.320.014.814.4Operatingprofit(RMBmn)1,001.8991.21,301.81,523.31,779.7Netprofit(RMBmn)601.7747.1946.11,098.41,273.9EPS(Reported)(RMB)0.290.360.470.550.65YoYgrowth(%)45.024.230.616.417.5EPS(Cons.)(RMB)n/an/a0.460.550.64P/E(x)8.89.08.47.36.2P/B(x)0.60.70.80.70.7Yield(%)0.00.03.64.14.9ROE(%)7.58.39.610.211.0Netgearing(%)2.43.12.82.62.4Source:Companydata,Bloomberg,CMBIGMestimatesTargetPriceHK$6.23Up/Downside43.5%CurrentPriceHK$4.34ChinaConsumerDiscretionaryWalterWOO(852)37618776walterwoo@cmbi.com.hkStockDataMktCap(HK$mn)8,973.4Avg3mthst/o(HK$mn)9.452wHigh/Low(HK$)5.15/3.23TotalIssuedShares(mn)2067.6Source:FactSetShareholdingStructureMr.DingWuhao17.0%Mr.DingHuihuang16.3%Source:HKExSharePerformanceAbsoluteRelative1-mth17.9%8.6%3-mth26.9%21.6%6-mth3.8%9.5%Source:FactSet12-mthPricePerformanceSource:FactSetSportswear&ApparelJNBY(3306HK)–Animpressivebeatbutaconservativeoutlook(29Feb24)Xtep(1368HK)–4Q23wasinlinebutmacroisstillchallenging(10Jan24)Anta(2020HK)–Aninlinebutresilient4Q23;AmerfiledforIPO(8Jan24)Topsports(6110HK)–Turnaroundcontinuesafteraresilient3Q24(18Dec23)Topsports(6110HK)–Turnaroundisontrackdespitebumpysales(24Oct23)AntaSports(2020HK)–2023InvestorDayandthenew3yearstargets:excitedaboutAntabrand'snewstrategies(19Oct23)BUYMar-23Jun-23Sep-23Dec-232.503.003.504.004.505.005.501361HKHSI(Rebased)(HK$)