\u3000\u3 Shengda Resources Co.Ltd(000603) 001 Zhejiang Aokang Shoes Co.Ltd(603001) )
Key investment points
China’s footwear leader. Founded in 1988, the company is mainly engaged in the R & D, production and sales of leather shoes and leather products, including business formal shoes, casual shoes, sports shoes and leather accessories. It owns its own brands Aokang (medium and high-end business fashion) and KANGLONG (fashion and leisure), and acted as an agent for international sports and leisure brands skechres and puma in 2015 / 2018 respectively. According to Euromonitor, in 2021, the company ranked ninth and second respectively in the sales market share of footwear and non sports shoes in China. In 2021q1-q3, Aokang / KANGLONG / SKECH’s revenue accounted for 63.5% / 12.5% / 11.2% respectively, and online / offline revenue accounted for 16.7% / 83.3% respectively. As of 2021q3, there were 2540 stores (1229 Direct stores + 1311 distribution stores).
Seek change under the epidemic and establish the strategy of focusing on “comfortable men’s shoes”. In recent years, the growth of China’s leather shoes market has been sluggish. Since 2016, the company’s revenue growth has stagnated, the market share has declined year by year, the superimposed expense control is poor, the asset impairment loss & investment loss fluctuates, and the net profit has continued to shrink for many years. Since 2020, the company has actively sought strategic transformation, and its revenue has maintained positive growth in the first three quarters of 2020 / 2021. 1) 2020: the layout of online channels & digital transformation, with a revenue of 2.738 billion yuan / yoy + 0.42% and a net profit attributable to the parent company of 27.94 million yuan / yoy + 24.20%. The high online growth (+ 26.0%) led to a positive growth rate of revenue. In the same period, the factors of large impairment losses of long-term equity investment were eliminated and the growth rate of net profit was boosted. 2) 2021: cooperate with Junzhi consulting to seek strategic change, establish the core strategy of focusing on mainstream people and focusing on “comfortable men’s shoes”, and realize brand upgrading from five aspects: Strategic landing, channel expansion, image upgrading, operation upgrading and policy incentive. 2021q1-q3 revenue yoy + 37.0% / compared with the same period in 2019 + 8.6%, net profit attributable to parent yoy + 385.9% / compared with the same period in 2019 – 57.3%. Quarter by quarter, the revenue of 2021q1 / Q2 / Q3 was + 92.2% / + 21.3% / + 9.6% (base reason + epidemic situation in the middle of the year and decline quarter by quarter), and the net profit attributable to the parent company was + 173842% / + 111.10% / – 279.13% year-on-year respectively. There was a large fluctuation in a single quarter, mainly due to the unstable cost control + inventory falling price / provision for bad debt loss / change in fair value, which had a one-time impact on the profit of this year or the base period.
The channel adjustment has significantly improved the store efficiency, and the recovery trend of Aokang / SKECH brand is good. 1) By channel, the online / offline revenue of 2021q1-q3 was + 21.5% / + 42.7% year-on-year, and + 42.1% / 3.0% year-on-year compared with the same period in 2019. Under the guidance of the new strategy, the company sorted out channels and upgraded stores. The direct sales / distribution revenue of 2021q1-q3 was + 46.2% / + 23.3% year-on-year and + 19% / – 14% year-on-year respectively. By the end of 2021q3, there were 1229 / 1311 direct sales / distribution stores (101 / – 43 respectively compared with the beginning of the year). The revenue still increased under the net decrease of direct sales stores, reflecting the effective increase of the revenue of the same store under the channel adjustment. In 2022, the channel expansion plan will be extended to six provinces and one city (Zhejiang / Jiangsu / Anhui / Fujian / Hunan / Hubei / Shanghai), and the store efficiency will continue to grow through the high-speed urban layout. 2) By brand, the main brand Aokang increased slightly compared with that before the epidemic, and the income of SKECH increased significantly compared with that before the epidemic. 2021q1-q3 Aokang / KANGLONG / SKECH’s revenue was + 41.0% / 25.8% / 39.9% respectively year-on-year, and + 7.0% / – 9.4% / + 46.0% respectively compared with the same period in 2019.
Profit forecast and investment rating: the company is the leader of Chinese leather shoes. Since 2016, its operation has faced great challenges. The net profit margin of sales has decreased year by year from about 10% before 2015 to 1% in 2020. In 2021, the company cooperated with Junzhi consulting and established the core strategy of focusing on the mainstream population and focusing on “comfortable men’s shoes”. In the future, it is expected to improve the brand potential by focusing on the main brand, channel upgrading and product reform, and break through the bottleneck period of footwear market development. We expect that with the implementation of the new strategy, the company’s net interest rate is expected to recover. The employee stock ownership plan was released in April 2021, and the performance evaluation target is based on 2020. The revenue growth in 2021 / 2022 / 2023 is not less than 20% / 40% / 60%, or the net profit growth is not less than 50% / 100% / 200%. We expect the net profit attributable to the parent company of the company to increase by 65.1% / 112.8% / 75.3% respectively from 2021 to 2023, and the corresponding PE is 68x / 32x / 18x. Considering that the profitability of the company (such as net interest rate / ROE) is still low, we will give the rating of “overweight” for the first time.
Risk tip: the epidemic has repeatedly affected residents’ consumption, intensified industry competition, brand transformation is less than expected, etc.
