Zhejiang Aokang Shoes Co.Ltd(603001) (603001)
Summary of this issue:
Domestic leather shoes industry leader, years of precipitation, brewing and upgrading. The company is mainly engaged in the production, R & D and retail of men’s leather shoes. It has its own brands such as Aokang, KANGLONG, red Firebird and beautiful beauty, and has become the mainland agent of sports brands SKECH and puma. The company implements a horizontally integrated business model, with downstream channels dominated by offline direct sales, supplemented by e-commerce and offline distribution. After 2016, the company’s revenue and profit continued to decline due to the decline of industry prosperity and fierce competition. In the first three quarters of 2021, the company achieved a revenue of RMB 2.143 billion, an increase of 36.95% and a net profit of RMB 47 million, an increase of 440.77%. It rebounded due to the mitigation of the epidemic and the change of accounting standards.
The industry continues to be depressed, the competition pattern is scattered, and the subdivided leaders are expected to break through. In recent years, the development of China’s men’s leather shoes industry has entered a bottleneck period. In 2020, the market scale was about 184.2 billion yuan. Affected by the epidemic, the business income and performance of leather shoes of Listed Companies in the industry continued to decline year-on-year. From the perspective of competition pattern, the leather shoes industry presents a situation in which international well-known brands occupy the high-end market, local brands are positioned in the mass market, and brands in the middle price belt are scarce, and the leading market share is at a low level. Combined with the current recovery background of the national trend, benchmarking is the first to go out of the down jacket industry of local leading brands. We believe that the local men’s leather shoes brands with specific wearing scenes and can break the pain points such as poor comfort of traditional leather shoes are expected to break through successfully.
Junzhi helps to comprehensively upgrade, and the domestic brand of men’s shoes is ready to come out. In January 2021, the company reached a strategic cooperation with Junzhi consulting to create “more comfortable men’s leather shoes”, which helped Bosideng and other domestic brands to successfully transform and upgrade. In terms of brand, the company focuses on Aokang’s main brand and main categories of men’s shoes, streamlines SKU, takes “Chinese comfortable men’s leather shoes expert” as the brand strategic positioning, and comprehensively improves the brand potential. In terms of channels, the company eliminated inefficient stores offline, upgraded the original channel image, and opened new channels in high-end shopping malls and core business districts to improve the brand image; Online with the help of e-commerce dividends, transform private traffic and attract young groups. In the future, the company is expected to realize the transformation and upgrading of the brand and position its products in the medium and high-end price belt with scarce brands. In terms of marketing, the company is expected to increase investment in traditional and new media marketing channels and expand brand influence with the help of external high-quality design resources. In terms of products, the company’s cross-border joint IP injects young vitality into the brand, applies patented technology to four series of new products, endows the products with comfort, fashion and functionality, and steadily improves the brand positioning and price.
Go to the battle to remove inventory, and increase efficiency through the whole link of fast reverse supply chain and intelligent warehousing. At present, the company’s inventory structure is healthy. After years of continuous inventory cleaning and optimization, the inventory of 2021q3 has decreased by 9.19% year-on-year, and the inventory is at the low level in recent years, which helps the company to upgrade its brand with light equipment. The company has built a digital intelligent manufacturing factory and intelligent operation center to enable rapid response to the supply chain system and efficient warehousing and logistics capacity, ensure the company’s ability to produce efficiently and quickly respond to downstream demand, and control the inventory level.
Profit forecast and investment rating. We are optimistic about the all-round upgrading of the company’s brand. There is a soil for the development of high-quality domestic brands in the men’s leather shoes industry. After the brand potential energy is improved, the performance elasticity is large. We expect that the revenue from 2021 to 2023 will be 29.49/34.00/4 billion yuan, an increase of 7.72% / 15.28% / 17.65%, and the net profit attributable to the parent company will be 44 / 0.99/170 million yuan, an increase of 55.8% / 127.7% / 71.4%. At present, the valuation is at a low level. According to the absolute valuation method, we gave the company a target price of 11.45 yuan. The company’s short-term performance hit the bottom and had a large space for long-term development. It was given a “buy” rating for the first time.
Risk factors: repeated covid-19 epidemic, less than expected brand upgrading, intensified industry competition, etc.
