\u3000\u3000 Jinhong Fashion Group Co.Ltd(603518) (603518)
It is mainly engaged in medium and high-grade clothing business. It has three brands: teenieweenie (TW), vgrass (VG) and Yuanxian, which are respectively positioned as high-end new retro college style, high-end women’s clothing and high-end boutiques of Chinese cultural elements. Due to the base, the growth rate of revenue in the first three quarters of 2021 slowed down quarter by quarter, but achieved a large growth compared with that before the epidemic. 2021q1 / Q2 / Q3 increased by 78.05% / 68.81% / 29.37% respectively, and 55.80% / 48.60% / 42.68% respectively compared with the same period in 2019. The company expects that the net profit attributable to the parent company will turn from loss to profit to 209-231 million yuan in 2021 (2020 – 624 million yuan), mainly benefiting from: ① the significant increase of TW brand revenue and profit; 2. The new channel has tiktok to increase revenue and online share. ③ Loss due to impairment of goodwill and intangible assets in the same period of last year.
Tw adjustment was effective and revenue growth accelerated. The company acquired TW in 2017. After four years of adjustment and running in, TW achieved a breakthrough in brand strength and revenue growth in 2021. In the first three quarters of 2021, the revenue of TW / vgrass / yuan was + 69.58% / 32.98% / 40.06% year-on-year respectively, and the revenue accounted for 72.6% / 26.87% / 0.53% respectively, unchanged from + 3.22pct / – 3.22pct/ in 2020. Quarter by quarter, in 2021q1 / Q2 / Q3, TW revenue was + 103.94% / 75.72% / 34.03%, 64.09% / 61.16% / 52.95% compared with 2019, VG revenue was + 25.74% / 56.12% / 21.25%, 35.07% / 25.36% / 23.93% compared with 2019.
The new channel has tiktok to form incremental revenue and the proportion of online revenue is increased. In the first three quarters of 2021, online / offline revenue was + 62.17% / 55.65% year-on-year, accounting for 30.99% / 69.01% respectively, and + 5.83pct / – 5.83pct respectively compared with 2020. 1) the momentum of the channel is tiktok, which promotes the growth of online revenue year-on-year. 2021q1 / Q2 / Q3 online revenue was + 33.08% / 78.82% / 88.11% year-on-year respectively, and + 251.46% / 230.52% / 276.51% respectively compared with the same period in 2019. 2) Affected by the epidemic, the growth rate of offline revenue slowed down in 2021q3. By the end of September 2021, the company had 1366 offline stores / yoy-0.44% (tw1160 + vg205 + Yunjin 1). The offline revenue of 2021q1 / Q2 / Q3 was + 105.04% / 65.42% / 11.70% year-on-year respectively, and + 27.93% / 18.13% / 7.72% compared with the same period in 2019.
The employee stock ownership plan encourages the enthusiasm of the management, and the performance growth is expected to continue. The first phase of the employee stock ownership plan was launched in August 2021, and the participating shares accounted for 0.96% of the total share capital. The participants were senior executives Zhang Shiyuan, Zhou Jingping, Tao Weimin and 13 core managers. The assessment objectives from 2021 to 2023 are: revenue not less than 4.3 billion yuan, same growth not less than 16%, growth not less than 35% compared with 2021, or net profit not less than 300 million yuan, same growth not less than 47%, growth not less than 83% compared with 2021. In 2021, we expect the revenue to meet the assessment target, but the net profit index has not been reached due to the increase of sales expenses.
Debt replacement + fixed increase + cash flow to gradually solve debt problems and reduce financial costs. In 2017 and 2020, the company acquired 90% equity and the remaining 10% equity of TW with RMB 4.44 billion and RMB 300 million respectively. As of October 2021, the remaining outstanding debts arising from M & A totaled 2 billion yuan (China Merchants Bank 390 million yuan + Hangzhou financial investment 1.61 billion yuan). The company plans to gradually reduce financial costs and pay off debts through debt replacement + fixed increase + cash flow repayment. The company expects ① to complete the debt replacement by the end of February 2022 (the company has applied for a loan of 1.5 billion yuan from China Merchants Bank to repay the debt of Hangzhou financial investment on November 2020) + fixed increase (the raised fund is 330 million yuan for repayment), ② to repay the debt with operating cash flow of 300 million yuan every year in the future.
Profit forecast and investment rating: after years of running in and adjustment, TW brand is finally going to be good. Since 2020, the precise grasp of the new channel of jitter has also reflected the company’s determination to make a tiktok and good channel management capabilities. With the gradual resolution of the debt problem and the easing of the suppression of interest expenses on the company’s performance, we expect the net profit attributable to the parent company in 2021-2023 to be + 135.3% / + 37.8% / + 18.2% year-on-year respectively, and the corresponding PE is 14.1x/10.3x/8.7x respectively. The valuation is low, and the “buy” rating is given for the first time.
Risk warning: the tiktok, the flow of voice and the financial cost pressure are lower than expected.
