\u3000\u3 China Vanke Co.Ltd(000002) 029 Fujian Septwolves Industry Co.Ltd(002029) )
China's leading men's wear brand. Founded in 1990, it is mainly engaged in Fujian Septwolves Industry Co.Ltd(002029) brand men's wear and knitwear business. The main brand positioning is fashion, business and leisure (price band 4992599 yuan), and jacket products rank first in the market share of similar products in 2020. In 2017, it acquired the international light luxury brand Karl Lagerfeld (KL, price band 259015990 yuan, mainly in tier 1-2 cities), and currently holds 80.1% of its equity. In 2021, the company achieved a revenue of 3.51 billion yuan / yoy + 5.5% / compared with - 3.0% in 2019, and a net profit attributable to the parent company of 230 million yuan / yoy + 10.7% / compared with - 33.4% in 2019, which has not yet returned to the pre epidemic level. Quarter by quarter, the revenue of 2021q1 / Q2 / Q3 / Q4 was + 40.1% / - 11.6% / + 2.6% / - 2.2% year-on-year respectively, compared with - 1.5% / + 0.2% / - 8.8% / - 1.2% in 2019, and the net profit attributable to the parent company was + 253.5% / - 72.6% / - 83.4% / - 4.4% year-on-year respectively, compared with + 2582.4% / + 92.5% / + 1161.4% / - 132.9% in 2019. The epidemic in 2021 dragged down the recovery of Q3 / Q4 revenue end, and the net profit end was greatly affected by non recurring profits and losses (mainly caused by the fluctuation of financial products and stock prices held).
The efficiency of offline channel stores has been improved, and KL has a good growth momentum. 1) By brand, in 2021, the revenue of the main brand Fujian Septwolves Industry Co.Ltd(002029) / KL was + 1.6% / + 107.3% year-on-year respectively, accounting for 91.7% / 8.3% of the revenue of clothing business respectively. In 2021, by cooperating with excellent designers, improving the supply chain, enriching the product structure and optimizing channels, KL brand's revenue increased significantly and turned losses into profits, with a net profit of 11.2 million yuan (a loss of 32.48/22.18 million yuan in 2019 / 2020 respectively). With the company's further accumulation of new brand operation experience, KL brand is expected to become a new driver of profit growth. 2) By channel, the online / direct / franchise revenue in 2021 was - 1.3% / + 1.4% / + 15% year-on-year, accounting for 40.8% / 19.5% / 31.5% of the total revenue respectively. Due to the high cost of online channels, the company reasonably controlled the cost of traffic delivery in 2021, and the online gross profit margin rebounded by 3.9pct to 42.5%, resulting in a slight decline in revenue. By the end of 2021, there were 897 direct / franchise stores respectively (a net decrease of 12 stores / yoy-1.3% compared with the end of 2020) and 979 stores (- 24 stores / yoy-2.4%). After the epidemic, the company actively laid out digital stores, launched Fujian Septwolves Industry Co.Ltd(002029) boutique club image stores, provided clothing modification and customization, clothing care and other supporting services, promoted the effective improvement of store efficiency, and thus boosted offline revenue.
The gross profit margin of all channels rebounded, and the non recurring profit and loss fluctuated greatly. 1) Gross profit margin: in 2021, the gross profit margin increased from + 3.5pct to 46.2% year-on-year, of which online / direct sales / franchises respectively increased by + 3.9pct/4.6pct/3.9pct year-on-year, mainly due to the low product discount rate in 2020 and the recovery in 2021 (the average discount rate is about 70%). 2) Expense ratio: during 2021, the expense ratio was - 0.5pct to 30.1% year on year, of which the sales / management / R & D / financial expense ratio was - 0.7 / + 0.5 / - 0.5 / - 0.8pct year on year respectively. Due to the reduction of online delivery and offline net closing, the advertising, store decoration and rental expenses decreased in 2021, driving the reduction of sales expense utilization. 3) Non recurring profit and loss: ① the change of fair value in 2021 was - 23.57 million yuan (2020: + 71.14 million yuan), mainly due to the change of financial products and stock prices held by the company; ② the asset impairment was 340 million yuan (2020: 320 million yuan); the company implemented a relatively strict inventory falling price accrual policy, with a large amount of accrued amount, which was reversed according to the inventory situation in the next year, and the overall impact on the net profit was relatively small. 4) Net profit margin: changes in comprehensive gross profit margin, expenses and non recurring profits and losses. The net profit margin attributable to the parent company in 2021 is + 0.3pct to 6.6% year-on-year. 5) Inventory: in 2021, the inventory was 1.022 billion yuan / yoy + 1.4%, and the turnover days of clothing inventory was + 1 day to 193 days. Among them, the inventory within 1 year / 1-3 years / more than 3 years was - 14.8% / 21.5% / 21.1% year-on-year, accounting for 33.5% / 39.6% / 26.9% respectively, mainly due to the inventory backlog caused by the epidemic affecting sales in 2020. 6) Cash flow: the net cash flow from operating activities in 2021 was 540 million yuan / yoy-6.2%. The company has abundant cash and 1.58 billion yuan in cash on account / yoy + 21.6%.
Profit forecast and investment rating: the company is a leading men's wear brand in China. Affected by the epidemic, its performance declined in 2020 (revenue and net profit were - 8% and - 40% respectively). It recovered in 2021, but it has not fully recovered to the level before the epidemic. The KL brand acquired in 2017 achieved profit after adjustment. In April 2022, the company issued a stock option incentive plan for 40 directors, senior executives, middle managers and core technicians. The assessment objectives are that the pre tax operating profit will increase by no less than 10% in 2023 compared with 2021 and no less than 10% year-on-year in 2024 / 2025. Considering the impact of the epidemic, we expect that the net profit attributable to the parent company will increase by 7.8% / 9.8% / 10.0% year-on-year from 2022 to 2024, and the EPS will be 0.33/0.36/0.40 yuan / share, corresponding to pe17 / 16 / 14x, with high valuation, and the "neutral" rating will be given for the first coverage.
Risk tip: the epidemic repeatedly affects consumption, financial products held and stock price fluctuations, affecting performance.
