BIEM.L.FDLKK(002832):PRECISE BRAND POSITIONING SECURES HIGH GROWTH;HIGH POTENTIAL FOR MARKET EXPANSION
2021 results in line; earnings growth picks up in 1Q22
Biem.L.Fdlkk announced 2021 results: Revenue rose 18.1% YoY to Rmb2.72bn; attributable net profit increased 25.2% YoY Rmb625mn, in line with our expectations. In 4Q21, revenue grew 3.0%[1] YoY to Rmb751mn, and attributable net profit gained 10.2% YoY to Rmb165mn.
For 1Q22, revenue gained 30.16% YoY to Rmb810mn and attributable net profit increased 41.3% YoY to Rmb213mn, maintaining robust growth.
Trends to watch
Keen focus on the niche market for golf apparel; solid branding. The firm targets middle- and high-income consumer groups, and recognizes the importance of design and R&D strength. By end-2021, it had acquired 107 patents, and rolled out multiple high-end fabric products, which helped enhance brand influence, in our opinion.
Riding the boom of Chinese brands, Biem.L.Fdlkk continued to strengthen its brand image as a mid-range to high-end domestic apparel brand via various marketing campaigns. In 2021, the firm stepped up brand marketing by working with celebrities, key opinion leaders (KOL) and major media companies.
Ahead-of-peer profitability; exploration of new retail model. In 2021, gross margin (GM) of major business rose 2.81ppt YoY to 76.7%, well above the industry average. By channel, revenue from direct-sale stores increased 17.5% YoY to Rmb1.91bn with GM of 81%; and revenue from franchised stores increased 18.6% YoY to Rmb683mn with GM of 69%. The firm expanded new retail channels in 2021, and its members exceeded 0.7mn, driving online revenue to grow 51% YoY to Rmb122mn. We believe revenue contribution from online sales may rise further.
Large room for brick-and-mortar store expansion; high operating efficiency to facilitate market expansion. The firm believes room for market expansion remains large in tier-3 and -4 cities, and it plans to expedite penetration into these markets. According to historical data, the company has the potential to open 1,500-2,000 stores in different tiers of cities. In 2021, net operating cash flow reached Rmb898mn, and inventory turnover days decreased to 360 days. We think ample cash flow and enhanced operating efficiency can better support store expansion.
Financials and valuation
Given enhanced operating efficiency and the room for penetration into lower-tier markets, we raise our 2022 and 2023 earnings forecasts by 5.6% and 10.8% to Rmb823mn and Rmb1.03bn, implying 15.5x and 12.4x P/E. We maintain an OUTPERFORM rating and TP of Rmb31.11, implying 19.8x 2022e and 13.9x 2023e P/E, offering 39.5% upside.
Risks
Domestic COVID-19 resurgence in 2Q22; rising cost of labor and raw materials; disappointing store expansion.