metersbonwe - xueqiudoc.xueqiu.com/142855514a4b33fe79f541ea.pdf · metersbonwe has adapted its...

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Equity Research

November 22, 2013

Metersbonwe

Upgrade on superior branding and O2O

Investment focus Upgrade to BUY

Action

We upgrade Metersbonwe from ACCUMULATE to BUY. Over the past few years, the apparel sector has faced competition from online and overseas, and the growth of traditional brands has slowed. The only companies to see rapid growth are those whose range of products and channels can satisfy mass consumer demand as well as have a high portion of direct operations and an O2O strategy. We believe Metersbonwe has adapted its strategy to industry trends and is likely to become a bellwether.

Reasoning

Mass consumption to rebound from bottom; casual wear has a huge market. The size of China’s apparel industry is likely to grow 7.8% YoY in 2013 and 8.2% in 2014.

Over the past two years, Metersbonwe has strengthened its product and channel construction, and its reforms have paid off.

► Improved fundamentals.

► Brands strengthened; product design made

breakthroughs and focused on cost effectiveness.

► Channel reform and O2O.

After adjustment, earnings are likely to reach a turning point in 2014. Based on conservative estimates, considering the equity incentive unlocking conditions, net profit should be Rmb850mn and Rmb990mn in 2014 and 2015, implying a turning point.

Earnings forecast and valuation

Metersbonwe is our top pick in the apparel sector, due to how it has adapted to mass consumption demand, its high rate of direct operations, mix of both online and offline business, progress on O2O, and strengthened branding, as well as the visible turning point for earnings in 2014. After the recent correction, the stock is trading at a 2014/15e P/E of only 14x/12x, at the middle to low end of the sector (vs. Semir’s 18x 2014e P/E).

Risks

Sluggish consumption.

Ticker 002269.SZ

Last close Rmb12.19

52wk price range Rmb16.62~8.37

Market cap (bn) Rmb12

Daily value (mn) Rmb74.30

Shares outstanding (mn) 1,005

Free float (%) 15

Daily volume (mn sh) 5.44

Business sector Apparel

(Rmb mn) 2011A 2012A 2013E 2014E

Revenue 9,945 9,510 7,880 9,019

(+/-) 32.6% -4.4% -17.1% 14.5%

Net profit 1,206 850 516 853

(+/-) 59.1% -29.6% -39.3% 65.4%

EPS 1.20 0.85 0.51 0.85

BPS 4.11 4.11 4.62 5.47

DPS 0.00 0.00 0.00 0.00

CPS 0.97 2.84 1.49 1.18

P/E 10.2 14.4 23.8 14.4

P/B 3.0 3.0 2.6 2.2

EV/EBITDA 6.4 7.2 9.9 6.1

Dividend yield 0.0% 0.0% 0.0% 0.0%

ROAA 13.8% 10.7% 7.4% 11.3%

ROAE 32.3% 20.6% 11.7% 16.8%

Source: Bloomberg, company data, CICC Research

Rui GUO Haiyan GUO

[email protected]

[email protected]

SFC CE Ref: AIQ935

52

68

84

100

116

132

Nov-2012 Feb-2013 May-2013 Aug-2013 Nov-2013

Re

lative

Va

lue (

%)

002269.SZ CSI 300

CICC Research: November 22, 2013


2

12% 12%

14%

16% 16%

13%

15% 15%

10%

8%

12%

8%7%

6%6%

7%8% 8% 8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

100

200

300

400

500

600

700

1999 2001 2003 2005 2007 2009 2011 2013E 2015E 2017E

Men's Clothing YoY growth rate (RHS)Rmb bn

8%7%

9%

10%

9%

7%

10%

12%

6%

3%

12%

11%

9%

8%8%

9%9%

10%10%

0%

2%

4%

6%

8%

10%

12%

14%

0

200

400

600

800

1,000

1,200

1999 2001 2003 2005 2007 2009 2011 2013E 2015E 2017E

Women's Clothing YoY growth rate (RHS)Rmb bn

6%

5% 5%

7%

6%

3%

6%

8%

3%

1%

6%7%

9%

7%6%

7%8%

8%9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

20

40

60

80

100

120

140

160

180

1999 2001 2003 2005 2007 2009 2011 2013E 2015E 2017E

Childrenswear YoY growth rate (RHS)Rmb bn

9%8%

6%

10%

6%

2%

6%

9%

4%

2%

8%7% 7%

9% 8% 9% 9% 9% 9%

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

350

400

450

500

1999 2001 2003 2005 2007 2009 2011 2013E 2015E 2017E

Footwear YoY growth rate (RHS)Rmb bn

Mid-range/low-end consumption to grow steadily; casual wear market has

strong growth potential

Despite the fact growth has slowed in the mass apparel & accessory industry, a slight

recovery is expected after operational adjustments, de-stocking and promotion take

hold. Euro Monitor estimate the size of China’s apparel industry will reach Rmb1.8trn in

2013 (+7.8% YoY), slightly lower than the 2008~12 CAGR of 11.7%. Euro Monitor also

expects the industry to stabilize and rise slightly, growing 8.2% YoY to Rmb2.0trn in 2014.

Figure 1: The size and growth rate of the domestic apparel industry

Source: Euro monitor, CICC Research

Figure 2: Size and growth of various apparel segments

Source: Euro monitor, CICC Research

The casual wear market has large market size and low concentration, while foreign

brands have limited market share. Casual wear’s key consumer base – young people aged

15~24 – numbered ~210mn in China in 2012. Based on a consumption value of Rmb1,000

per person per year, the market size could reach Rmb210bn. Zara, H&M and Uniqlo only

accounted for 8.9% of market share in 2012, with estimated sales of Rmb19bn; while

Metersbonwe accounted for 7%, no major difference vs. its foreign peers. However,

compared with international brands, Metersbonwe should improve the ratio of end retail

sales/number of stores, which is ~Rmb3mn currently vs. ZARA’s Rmb24.6mn, H&M’s

33.22mn and Uniqlo’s Rmb32.24mn in 2012. Overall, the domestic casual wear market will

grow steadily, and the market share of leading players should increase quickly.

7%8%

10% 10%11%

11%12%

13%

12%

11%10%

13%

14%

10%

8% 8% 9% 9% 9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500

1,000

1,500

2,000

2,500

3,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E

Apparel YoY growth rate (RHS)Rmb bn



3

0

2

4

6

8

10

12

14

0

1

1

2

2

3

3

4

4

2009 2010 2011 2012 1Q13 2Q13 3Q13

Inventory turnover Account receivables turnover(RHS)

3,163

1,520

2,014

1,000

1,500

2,000

2,500

3,000

3,500

2010 1Q11 2Q11 3Q11 2011 1Q12 2Q12 3Q12 2012 1Q13 2Q13 3Q13

InventoryRmb mn

2012

Population aged 15~24yrs (mn) 211

Casual wear consumption per person per year(Rmb) 1,000

Market size (Rmb bn) 211

Sales of foreign brands in China (Rmb bn) 19

Percentage of total 8.9%

ZARA’s sales in China (Rmb bn) 10

H&M’s sales in China (Rmb bn) 4

UNIQLO’s sales in China (Rmb bn) 5

Casual wear market size (Rmb bn) 703 Foreign brands’ percentage share 2.7%

Figure 3: Estimated market size of casual wear for population aged 15~24

Source: Company data, CICC Research. Note: foreign brands’ China sales figures are based our rough estimates

Metersbonwe’s reforms: improved fundamentals

Inventory turnover and account receivables turnover have both recovered quarter by

quarter. Metersbonwe’s inventory fell from early 2011’s Rmb3.2bn to end-3Q13’s Rmb2bn.

Stripping out the delayed delivery of goods to franchisees due to bad weather, the inventory

should be ~Rmb1.5bn. The inventory quality is high, with the previous seasons’ goods only

accounting for a mid-/low-double-digit share. Given that Metersbonwe’s direct operations

account for a higher portion than its peers, the inventory has returned to a normal level. The

end sales of franchisees has declined ~10% YTD, while the company’s wholesale revenue fell

~20% YoY, implying Metersbonwe controls channel inventory and the inventory adjustment

has been completed.

Metersbonwe’s direct operation level is much higher than its peers: as of 1H13, the

revenue of directly operated stores stood at 54% of the total, vs. 2008’s 32%.

Figure 4: Inventory has now returned to a reasonable level

Source: Company data, CICC Research

Metersbonwe’s reforms: R&D adjusted

The company’s R&D previously followed a “major theme” model, without much

diversification in terms of patterns and colors. At end-2012, the company shifted to a “multi

category” model, using innovative raw materials, designs, patterns and colors, breaking the

18~25 age boundary, and focusing on consumer experience and cost effectiveness. The new

products have been well received, with the shelf sales ratio >85% in spring, summer and

autumn this year. For example, down jackets made from neo-fiber – a new product the

company launched in 2013 – have been selling well; and with a price point that is 60~70%

that of its market equivalent, it is highly cost effective.



4

Figure 5: New products such as its neo-fiber and nanometre-fiber series have been well received

Source: Banggo, CICC Research

Metersbonwe’s reforms: improved direct operations & O2O; more

integration with physical stores

In October 2013, the company’s major shareholder transferred the Banggo platform to

it for free, laying down a solid foundation for O2O operations.

For offline experience stores, the company has adopted a strategy it calls “Once City, One

Culture, One Store, One Story”. Six experience stores are now open; each is decorated in a

style which incorporates local culture, with the merchandising and lighting tweaked to

improve customer experience. Taking the Yanqing store in Hangzhou as an example – at

end-October it was revamped in the theme of the city’s old train station, and an O2O

experience floor was also opened. Consumers now stay at the store for a noticeably longer

time and the purchase rate has surged to 15%; the ratio of end retail sales/number of stores

increased >10% vs. before the makeover. The company plans to open and adjust 100 stores

next year, and take its total number of such stores to 1,000 in three years.

Metersbonwe’s franchisees are divided into regions; their channels are relatively flat and

there is no competition within a same city. In the future, franchised stores will be part of the

overall O2O strategy, delivering the functions of in-store experience, last-mile delivery, and

offline physical store promotion. The profits of sales generated online, but delivered by

company HQ, will be shared with local franchisees based on principle of territory. This can

ensure franchisees’ profits and also improve the company’s gross margin.



5

O2O operations: the company has realized online and offline interconnections with products

sold at the same price across both channels. It owns the e-commerce platform Banggo, and

has rolled out WeChat accounts (>600,000 members, per capita consumption >70% higher

than conventional members) and a Banggo App. In all bricks-and-mortar stores, there are

wireless networks, offering consumers internet access to browse key patterns, promotions,

merchandising and product information online. Consumers may also try on clothes and pay

online, as the company has established cooperative relationship with WeChat and Alipay. In

the Yanqing store in Hangzhou, there is a dedicated floor for consumer experience. Please see

Figure 8 for more details.

Figure 6: Promotion of direct operations


Figure 7: Experience stores

Beijing Road Store in Guangzhou Yanqing Store in Hangzhou


412 523690

11301306

2286 2340

2969

36633914

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012

Direct sales stores Franchisees stores

32

4447

40

45

5456

4851 50

47

52

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 1H13

Direct sales ratio Direct sales gross margin

%



6

Figure 8: O2O shopping experience


Figure 9: Banggo overview

Source: Banggo.com, CICC Research



7

Figure 10: Unlocking schedule for restricted shares


Share sale by major shareholder

On October 19, the company announced that its major shareholder, Huafu Investment,

planned to sell <10% of shares cumulatively within six months. We believe the share sale

is necessary: 1) at the time of the announcement, the major shareholder and persons acting in

concert held 89.56% of the total equity; such a high shareholding percentage is rare in the

A-share market, and means the company has poor liquidity conditions; 2) the major

shareholder used to finance through equity pledge (~Rmb2bn); over the past few years, the

apparel sector has been correcting, and the company’s market cap has been shrinking

(Rmb8bn at its lowest); during this period, the percentage of equity pledged increased from

15% to 71.17%, with a risk of further increase.

On October 25, the company announced that its major shareholder had sold 45.4mn shares

(4.53%) through a block trading platform. On November 9, it announced that 8.74% of the

equity pledged previously had been released, and the percentage pledged fell from 71.17% to

62.42%. As such, the relevant risks have been effectively mitigated.

Unlock arrangement Unlock period Unlock percentage Unlock condition

First unlock

The first trading day after 12 months from the

grant date until the last trading day before 24

month from the grant date

10%

In 2014 net profit of not less than Rmb

850mn and net assets yield rate of not less

than 18%

Second unlock




20%


990mn and net assets yield rate of not less

than 18%

Third unlock




30%


1140mn and net assets yield rate of not

less than 18%

Forth unlock




40%


1320mn and net assets yield rate of not

less than 18%



8

Figure 11: Historical financials and forecasts


Income statement (Rmb mn) 2008A 2009A 2010A 2011A 2012A 2013E 2014E

Turnover 4,474 5,218 7,500 9,945 9,510 7,880 9,019

COGS (2,434) (2,895) (4,095) (5,552) (5,273) (4,255) (4,843)

Distribution expenses (944) (1,451) (1,989) (2,305) (2,772) (2,506) (2,643)

Administrative expenses (189) (217) (325) (341) (265) (244) (253)

Financial Costs (48) (53) (88) (207) (168) (110) (99)

Operating Profit 833 562 963 1,446 894 668 1,117

Non-operating income 17 83 105 159 228 80 80

Profit before tax 841 633 1,034 1,576 1,103 688 1,137

Income tax (254) (29) (276) (370) (254) (172) (284)

Net profit 588 604 758 1,206 850 516 853

Cashflow statement (Rmb mn) 2008A 2009A 2010A 2011A 2012A 2013E 2014E

Operating cashflow 470 856 (1,054) 977 2,856 1,497 1,183

Cashflow from investment (715) (1,039) (851) (438) (386) (813) (813)

Cashflow from financing 1,793 (404) 1,744 (525) (2,859) (610) (198)

Net change in cash position 1,547 (586) (161) 13 (389) 73 172

Balance sheet (Rmb mn) 2008A 2009A 2010A 2011A 2012A 2013E 2014E

Cash and equivalent 1,852 1,315 1,107 1,088 629 702 873

Trade receivable and prepayment 414 479 933 1,162 465 586 617

Inventories 664 902 2,548 2,560 2,006 1,303 2,195

Fixed assets, net 590 885 1,727 1,923 2,081 1,646 1,789

Intangible assets 122 130 128 188 189 188 186

Total Assets 4,577 5,451 8,587 8,882 7,006 6,915 8,150

Short term loan 1,051 459 2,576 2,369 794 294 194

Trade payables 417 507 1,244 606 539 433 913

Long term loan 200 200 100 100 0 0 0

Total liabilites 1,989 2,460 5,256 4,757 2,874 2,268 2,648

Owner's equity 2,588 2,991 3,331 4,126 4,132 4,648 5,501

Financial Ratios 2008A 2009A 2010A 2011A 2012A 2013E 2014E

Gross Margin 45.6% 44.5% 45.4% 44.2% 44.6% 46.0% 46.3%

Net Margin 13.1% 11.6% 10.1% 12.1% 8.9% 6.5% 9.5%

ROE 36.1% 21.7% 24.0% 32.3% 20.6% 11.7% 16.8%

Accounts receivable turnover 15.2 11.7 10.6 9.5 11.7 15.0 15.0

Inventory turnover 4.5 3.7 2.4 2.2 2.3 2.6 2.8

Assetliability ratio 56.5% 54.9% 38.8% 46.5% 59.0% 67.2% 67.5%



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1Y Forward PE Band

Stock price 40.0 x 30.0 x 20.0 x 10.0 x

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Figure 12: Valuation of comparables

Source: Bloomberg, Company data, CICC Research.

Note: we cover the companies marked in yellow and use market consensus data for the others..

Figure 13:P/E and P/B bands

P/E P/B

Source: Bloomberg, CICC Research

Price Mkt cap 2012~2014

(Local) (mn) 2012A YoY 2013E YoY 2014E YoY 2012A 2013E 2014E 2012A 2013E 2014E Net Profit CAGR

Textile & Apperal

Casual w ear 002269.SZ Metersbonw e 12.19 12,251 850 -30% 516 -39% 853 65% 0.85 0.51 0.85 14.4 23.8 14.4 0.2% 133.0

Semir 27.93 18,713 761 -38% 896 18% 1,050 17% 1.14 1.34 1.57 24.6 20.9 17.8 17.5% 1.2

002503.SZ SYT 9.79 4,229 273 58% 295 8% 342 16% 0.63 0.68 0.79 15.5 14.3 12.4 11.9% 1.2

Footw ear 1880.HK Belle 9.72 81,981 4,252 2% 4,283 1% 4,623 8% 0.63 0.65 0.71 15.5 15.0 13.7 4.3% 20.8

603001.SH Aokang 15.13 6,067 513 12% 482 -6% 574 19% 1.28 1.20 1.43 11.8 12.6 10.6 5.7% -2.1

Mensw ear 1234.HK China Lilang 5.09 6,114 627 1% 496 -21% 459 -7% 0.65 0.53 0.49 7.8 9.7 10.3 -14.4% -0.7

002029.SZ Septw olves 8.17 6,174 561 36% 477 -15% 534 12% 0.74 0.63 0.71 11.0 13.0 11.6 -2.5% -5.2

601566.SH Joeone 13.37 7,737 668 32% 606 -9% 666 10% 1.16 1.05 1.15 11.6 12.8 11.6 -0.2% -58.4

600177.SH Youngor 8.06 17,946 1,599 -9% 1,891 18% 2,549 35% 0.72 0.85 1.14 11.2 9.5 7.0 26.3% 0.4

002154.SZ Baoxiniao 6.11 3,659 478 30% 168 -65% 191 13% 0.80 0.28 0.32 7.7 21.7 19.2 -36.8% -0.6

002656.SZ Canudilo 14.68 2,936 177 62% 208 18% 251 21% 0.88 1.04 1.26 16.6 14.1 11.7 19.2% 0.7

Home Textile 002293.SZ Luolai 22.20 6,232 382 2% 367 -4% 428 18% 1.36 1.31 1.52 16.3 17.0 14.6 5.8% 2.9

002327.SZ Fuanna 17.16 5,518 260 26% 317 22% 381 20% 0.81 0.99 1.18 21.2 17.4 14.5 20.9% 0.8

002397.SZ Mendale 14.96 2,262 58 -48% 90 55% 107 20% 0.38 0.59 0.71 39.2 25.3 21.1 36.3% 0.7

Sports w ear 2331.HK Li Ning(Recurrent) 6.72 9,198 -884 -297% -321 -64% -473 48% -0.91 -0.34 -0.50 N/M N/M N/M N/M N/M

3818.HK Dongxiang(Recurrent) 1.24 6,865 194 83% 186 -4% 197 6% 0.04 0.04 0.05 28.3 28.9 26.8 0.9% 30.6

2020.HK ANTA 11.12 25,190 1,356 -22% 1,105 -18% 834 -25% 0.68 0.56 0.43 16.4 19.7 25.8 -21.6% -0.9

Outdoor 300005.SZ Toread 14.70 6,239 169 57% 238 41% 325 36% 0.40 0.56 0.77 36.9 26.1 19.2 38.7% 0.7

Lady w ear 002612.SZ Lancy 25.58 5,116 231 11% 269 16% 339 26% 1.16 1.35 1.70 22.1 19.0 15.1 21.1% 0.9

Textiles 2698.HK Weiqiao Textile 4.79 5,721 369 391% 592 61% 477 -19% 0.38 0.63 0.52 12.5 7.6 9.3 13.7% 0.6

2313.HK Shenzhou 26.60 32,386 1,620 -5% 1,834 13% 2,114 15% 1.44 1.67 1.95 18.5 16.0 13.6 14.2% 1.1

1382.HK Pacif ic Textile 10.62 13,678 925 14% 1,104 19% 1,339 21% 0.64 0.76 0.93 16.6 13.9 11.4 20.3% 0.7

000726.SZ Luthai A 8.86 708 -17% 924 30% 1,117 21% 0.74 0.97 1.17 12.0 9.2 7.6 25.6% 0.4

200726.SZ Luthai B 9.74 708 -17% 924 30% 1,117 21% 0.94 1.23 1.49 10.3 7.9 6.6 25.6% 0.3

000982.SZ Zhongyin Cashmere 8.45 6,074 281 68% 389 39% 550 42% 0.28 0.39 0.55 30.2 21.8 15.4 40.1% 0.5

Luxury & Jewelry

A shares 600612.CH Lao Feng Xiang 28.69 12,289 611 17% 748 22% 898 20% 1.17 1.43 1.72 24.6 20.1 16.7 21.2% 0.9

900905.CH Lao Feng Xiang B 2.543 2,018 611 17% 748 22% 898 20% 0.19 0.23 0.29 13.6 10.9 8.9 21.2% 0.5

002574.CH Ming Jew elry 16.8 4,032 74 -71% 96 30% 113 17% 0.31 0.40 0.47 54.6 41.9 35.8 23.5% 1.8

002345.CH CHJ 11.5 4,859 130 -14% 188 45% 225 20% 0.31 0.44 0.53 37.4 25.8 21.6 31.6% 0.8

002345.CH CHJ(Recur) 11.5 4,859 130 -14% 149 15% 177 19% 0.31 0.35 0.42 37.4 32.6 27.5 16.7% 2.0

600655.CH Yuyuan Tourist Mart 8.67 12,462 968 13% 1,049 8% 1,185 13% 0.67 0.73 0.82 12.9 11.9 10.5 10.6% 1.1

600086.CH Eastern Gold Jade 19.14 6,743 160 105% 255 59% 398 56% 0.46 0.72 1.13 42.1 26.4 16.9 57.6% 0.5

000026.CH Fiyta 7.6 2,789 116 -19% 131 13% 158 21% 0.30 0.33 0.40 25.7 22.9 18.9 16.7% 1.4

200026.CH Fiyta B 6.62 3,550 116 -19% 131 13% 158 21% 0.37 0.42 0.52 18.0 15.7 12.7 16.7% 0.9

H shares 1929.HK Chow Tai Fook 12.48 124,800 5,505 -13% 7,409 35% 8,779 18% 0.55 0.74 0.88 22.7 16.8 14.2 26.3% 0.6

590.HK Luk Fook 30 17,673 1,266 -5% 1,526 21% 1,807 18% 2.15 2.59 3.07 14.0 11.6 9.8 19.5% 0.6

116.HK Chow Sang Sang 24.9 16,855 985 -10% 1,163 18% 1,426 23% 1.45 1.72 2.11 17.1 14.5 11.8 20.3% 0.7

887.HK Emperor 0.65 4,474 404 27% 338 -36% 430 27% 0.06 0.05 0.06 10.8 12.9 10.2 3.1% 4.2

3389.HK Hengdeli 1.91 9,174 855 5% 647 -24% 809 25% 0.22 0.17 0.22 8.7 11.2 8.8 -2.7% -4.1

398.HK Oriental Watch 2.3 1,312 164 -25% 163 -1% 122 -25% 0.29 0.28 0.21 8.0 8.1 10.7 -13.7% -0.6

002563.SZ

PEGCompanyTickerNet Profit (mn) EPS

9,283

P/E


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