兴业证券-森马服饰-002563-Optimistic about Growth Recovery Certainty of the Absolute Leader in a Prosperous S

　　森马服饰(002563)
　　Company Profile
　　Zhejiang Semir Garment Co., Ltd. is a China-based company principally engaged in the design, development, production, marketing and distribution of leisure garments and children’s garments. The Company’s products mainly include T-shirts, jeans, wash pants, shirts, wadded jackets, coats, woolen clothes, waistcoats, sweaters, skirts, belts, leisure shoes, hats, gloves, scarves, socks, spectacles, leisure bags and accessories, among others. The Company distributes its leisure garments under brand name of Semir and distributes its children’s garments under brand name of Balabala. The Company distributes its products in domestic market, China. (Source: Reuters)
　　Investment Highlights
　　As a leading company in the trending-up sector, Zhejiang Semir Garment (the company) is about to meet a valuation recovery.
　　The children’s wear sector has the fastest growth rate among clothing sectors, with a compound growth rate of more than 10% in recent five years.
　　As an absolute leading producer in the children’s wear industry, the market share of BALABALA (the children’s clothing brand of the company) reached 6.9% in 2019 with a YoY increase of 1.0 pct. Adidas, as the second biggest children’s wear seller, takes only 1.4% market share with a YoY increase of 0.2pct.
　　In the past 9 years, the company’s revenue has grown significantly, with a compound growth rate of 13.31%. Despite the stable revenue growth, the company’s development is hindered by short-term shocks on leisure garments and losses of French-based subsidiary, and thus its valuation lies at the bottom now.
　　The company raises its growth certainty by stripping its French subsidiary. The company had already announced to sell Kidiliz Group, which is expected to finish the separation in 2020.
　　Kidiliz Group is the French subsidiary of Zhejiang Semir Garment, which was acquired in Q418. In the full year of 2019, Kidiliz Group had a loss of CNY 300 mn, causing negative effects on the company’s financial reports.
　　The COVID-19 leaded Kidiliz Group to a more sever situation---the loss expanded to CNY 120 mn in Q120. In the context, the decision of the sale of Kidiliz Group is going to improve the performance of Zhejiang Semir Garment.
　　Deepening reforms of channel and supply helps the company’s e-commerce business reach a new high.
　　The operating revenue of the e-commerce business has exceeded CNY 5.3 bn during 7 years since establishment. A 57.24% compound growth rate of the past 6 years means achieving an explosive growth. As the consumption habits are shifting from offline to online mode, the e-commerce sector will continuous the strong momentum in the future.
　　Baby clothing brand is growing rapidly.
　　A subsidiary brand of the company MarColor achieved a retail sales of CNY 400-500 mn, and the retail sell-through of another brand Minibalabala exceeded CNY 500 mn. Both brands’ growth rate has been around 100% in the past three years, which implies a positive outlook for the company’s baby clothing business.
　　Earnings forecast and investment recommendation
　　We revise the company’s operating revenue forecast to CNY 15.16/17.12 bn, down by 21.6%/up by 12.9% YoY for 2020/2021. We estimate the company’s net profit to be CNY 1.10 /1.84 bn, down by 28.7%/up by 66.7% YoY for 2020/2021, implying a P/E ratio of 21/12.6x (based on the closing price of July 23rd, 2020). We remain “Outperform” rating for the company.
　　Potential risks: weaker-than-expected macro-economic recovery; epidemic re-outbreak; poorer-than-expected terminal sales rebound