Investment points

　　Direct sales + rapid online growth drove performance improvement, and the performance exceeded expectations in the first half of the year, maintaining the "Buy" rating

　　 Bosideng (03998) announced the results of the first half of the 2020/21 fiscal year (April 1-September 30, 2020), achieving revenue of 4.66 billion yuan (+5.1%). Split by business, down jacket/OEM/women's clothing/diversified business achieved revenues of 29.9/12.3/4.1/0.3 billion yuan, a year-on-year change of +18.0%/-8.9%/-18.5%/-35.6%; split by channel, The online channel achieved revenue of 540 million yuan (+76.4%), which was mainly due to the efforts of the online outlet channel. The company achieved an operating profit of 670 million yuan (+39.5%) and a net profit of 490 million yuan (+41.8%) attributable to the parent. The performance maintained rapid growth and exceeded market expectations. We believe that Bosideng will continue to maintain the main theme of brand upgrading, and combine the continuous promotion of new retail operations and digital transformation strategies to create a brand efficiency year. Catalyzed by the cold winter and peak sales season, the company is expected to maintain strong growth in the second half of the year. It is expected that the annual down apparel business revenue is expected to achieve high double-digit growth. Maintain the profit forecast unchanged. It is estimated that the net profit of the company attributable to the parent will be 14.7/17.8/21.9 billion yuan in 2020-2022, and the EPS will be 0.14/0.17/0.21 yuan. The current stock price corresponds to PE at 21/17/14 times. Maintain "Buy" "Rating.

　　 1. The main brand has grown steadily, and the direct sales force + brand power enhancement drives the company's gross profit margin

　　 In the first half of FY2020/21, the main brand Bosideng's revenue was 2.73 billion yuan (+19.7%), which led to a rapid increase in the group's revenue. Branded down jacket direct sales channels (online + offline) achieved sales revenue of 1.109 billion yuan (+144.3%), which accounted for an increase of 19.2pct to 37.1%, achieving rapid growth, mainly due to the company’s direct sales channels, store expansion and store expansion Simultaneous improvement of efficiency, a net increase of 19 directly-operated stores against the trend, while closing down low-efficiency stores, adding new image stores and large stores in mainstream business circles, optimizing store structure in accordance with mainstream consumption trends, reducing rents and increasing efficiency, strengthening store refinement Operation, brand upgrade + increased proportion of direct sales drove the company's overall gross profit margin to increase by 4.3pct to 47.8%.

　　Inventory sales went smoothly, and cash flow control capabilities were significantly improved

The total inventory of the company in the first half of FY2020/21 was 2.605 billion yuan (-6.06%), a decrease of 4.4% from the beginning of the year (March 31, 2020). The progress of inventory removal was smooth, and the total inventory for the year is expected to remain stable; accounts receivable The payment turnover days were 98 days, a year-on-year increase of 12 days. This was mainly due to the impact of health incidents. The group increased its support for dealers’ payment collection and appropriately extended the payment cycle. The company’s net cash value was 3.523 billion yuan, a year-on-year increase. 104.9%, the company's cash flow management and control capabilities have been significantly improved.

　　Risk reminder: The warming weather affects the terminal sales of down jackets; the second outbreak of health incidents affects offline recovery, etc.

　　 The main business grew steadily, and the direct sales channels were used to boost performance, and the performance in the first half of the year exceeded expectations

The company announced its 2020/21 fiscal year semi-annual results (April 1, 2020-September 30, 2020), achieving revenue of 4.66 billion yuan (+5.1%). Branded down jackets, especially Bosideng’s main brand business, drove the rapid increase in group revenue ; Achieved an operating profit of 670 million yuan (+39.5%) and a net profit of 490 million yuan (+41.8%) attributable to the parent. The performance maintained rapid growth and exceeded market expectations.

Split by main business, the company’s branded down jacket/OEM/women’s clothing/diversified apparel business in the first half of FY2020/21 achieved revenues of 29.9/12.3/4.1/0.3 billion yuan, a year-on-year change of +18.0%/ -8.9%/-18.5%/-35.6%.

Split by channel, in the first half of FY2020/21, the company's online channels achieved revenue of 540 million yuan, a year-on-year increase of 76.4%, mainly due to the strength of online outlets, and the rapid growth of Vipshop and Tmall outlets; Offline channels realized revenue of 4.12 billion yuan, which was down 0.3% year-on-year due to health incidents.

　　1.1 Branded down jacket business: the main business has grown steadily, and direct sales channels have been used to boost performance

　　 In the first half of FY2020/21, the company's branded down apparel business achieved revenue of 2.99 billion yuan (+18.0%), accounting for 64.1% (+6.9pct) of total revenue. Under the strategy of focusing on the main channel, the company continued to strengthen the core business of branded down apparel, the main business maintained steady growth, and the proportion of revenue continued to increase.

Split by brand: the main brand Bosideng's revenue is 2.73 billion yuan (+19.7%), Xuezhongfei's revenue is 100 million yuan (+5.2%), Bingjie 110 million yuan (+2.1%) and other brands total 50 million yuan (-1.4%) .

Split by channel: ① Direct sales channels (online + offline) achieved sales revenue of 1.109 billion yuan (+144.3%), which accounted for an increase of 19.2pct to 37.1%, achieving rapid growth, mainly due to the company's direct sales channels. Store expansion and store efficiency improvement were carried out at the same time. 19 direct-operated stores were added against the trend, while low-efficiency stores were closed. Image stores and large stores were added in mainstream business districts, and store structure was optimized in accordance with mainstream consumption trends, and rent was reduced and efficiency was increased. Strengthen the refined operation of stores; and the rapid growth of 86.18% of e-commerce channels has driven the overall growth of direct sales channels. ②The wholesale channel achieved sales revenue of 1.828 billion yuan (-9.8%), accounting for 61.2% (-18.8pct). The decline in revenue was mainly due to the shrinkage of wholesale channels, with a net decrease of 221 stores to 2,784, and the company was affected by health incidents It is caused by lowering the proportion of franchisees' first orders. ③Other channels achieved sales revenue of 52 million yuan, a year-on-year decrease of 0.9%, accounting for approximately 1.7% (-0.4pct).

　　 In terms of brand management, the company mainly adopts the strategy of combining product and sales, and formulates communication plans and content based on the product launch cycle and the main products, so as to promote the continuous improvement of consumer awareness of the main brand Bosideng "down jacket experts". Moreover, in addition to the full display of products through celebrity endorsements and street photography, product placement, KOL, etc., the company further gathered grass-planting platforms during the reporting period, and introduced new media platforms such as Xiaohongshu and Douyin to the site and Offline stores fully diverted traffic to enhance brand awareness.

In addition, in May 2020, Bosideng was awarded the title of "High-end Market Influential Brand" in the Tmall "Light of Domestic Products 2020" Chinese Brand List; and assisted in the summit of Mount Everest in 2020, and once again demonstrated the functions of Bosideng products Sex, brand professionalism. In August 2020, Bosideng won the "Apparel Company of the Year in 2020 Peace of Mind Award" at the 2020 Interface New Consumption Forum; and in September 2020, it appeared as the most popular textile and apparel brand in the Chinese Brand Day Evening, and the brand upgrade results were widely recognized.

　　In terms of product management, the company conducts integrated management through more precise product development and more reasonable product structure and channels matching. Through digital operation, big data label clustering of past sales products and channels is used to improve the matching of products and stores.

In terms of order management, the company continued the previous ordering model of separating direct operation from wholesale. Directly-operated stores place orders in a single store and match products according to demand; dealer stores carry out different orders and rebates according to their scales. Since 2018, they will be *** The proportion of winter down orders will be controlled. In the 2020/21 fiscal year, the company's order fair*** orders continued to drop to no more than 30%. The remaining orders were replenished based on the terminal market feedback and demand in the peak season. More than 70% of the goods were supported by the fast-reverse supply chain to maintain rational ordering. Effectively optimize the company's inventory management and improve overall operational efficiency.

　　In terms of new retail and digital operations:

The company and Alibaba Cloud reached a strategic cooperation of "Digital Intelligence Transformation Pioneer", using the technical experience of Alibaba Data Center to open up omni-channel data, and then establish customer tags, improve marketing accuracy through precise crowd selection, and achieve high-quality digitalization Content reaches consumers.

　　 Make full use of private domain traffic to establish a corporate WeChat shopping guide marketing assistant for each shopping guide, and establish a more convenient communication bridge with customers. As of the first half of the 2020/21 fiscal year, the company’s corporate WeChat friends reached 8 million, WeChat official account followers totaled more than 5.5 million, an increase of more than 50% from the end of the 2019/20 fiscal year, and more than 19 million registered members, including 30 years old The following young consumers account for 20%.

　　 Offline stores used precise crowd circle selection for SMS reach and social media delivery, and the proportion and quality of consumers attracted to the store increased significantly.

　　1.2 OEM (OEM): Revenue has declined, seizing export opportunities

　　 FY2020/21H1 OEM processing management business achieved revenue of 1.23 billion yuan (-8.9%), accounting for 26.4% (-4.0pct) of total revenue. The decline in revenue was mainly due to the impact of overseas health incidents and the decline in demand on the brand side. Some customers cancelled or delayed orders in batches, which affected the company's performance.

　　 However, during the health incident, the company took active response measures, including expanding new customers, improving core customer stickiness, strictly controlling costs and expenses, and continuing to expand production capacity in Southeast Asia. Moreover, the company fully grasped the opportunity of health incidents and exported epidemic prevention materials, and the decline in revenue was smaller than the overall decline in the industry.

　　1.3 Women's clothing business: revenue decline due to health incidents

　　 FY2020/21H1 women's clothing business achieved revenue of 410 million yuan (-18.5%), accounting for 8.8% (-2.6pct), and revenue decreased due to health incidents. Among them, Jesse, Bangbao, Kolliano and Koroba realized revenues of 134 million yuan (-27.3%), 107 million yuan (-29.4%), 78.6 million yuan (+3%), and 92.6 million yuan (- 0.8%). In terms of channels, the number of women's clothing offline stores decreased by 30 to 469, and online sales increased by 25.3% year-on-year. It is expected that in the future, the company will actively adjust its women's clothing business through new retail digital operations and promote its performance improvement.

　　1.4 Diversified apparel business: the proportion continued to decline, and the school uniform business grew significantly

　　 FY2020/21H1 achieved revenue of 30 million yuan (-35.6%), accounting for 0.7% (-0.4pct). The company continued to promote the "focus on the main channel" strategy, and the proportion of diversified businesses continued to decline. Among them, Samet's school uniform business recorded a year-on-year growth of 72.2%. Using online sales to dilute the impact of health incidents, brand focus continued to increase.

　　 2. Profitability: gross profit margin has increased significantly, and expense ratio control is stable

Gross profit margin: In the first half of FY2020/21, the company achieved a gross profit margin of 47.8% (+4.3pct), which was an increase; among them: ①The gross profit margin of the branded down apparel business was 56.4% (+3.5pct), which was mainly benefited from the reshaping of the main brand Bosideng and Upgrade, and the proportion of direct sales channels has increased significantly; ②The gross profit margin of OEM processing business is 18.1% (+3.8pct), mainly because the company strictly controls fees, and promotes its gross profit margin through refined management and operation; ③Gross profit margin of women's clothing business 73.6% (-3.2pct); ④The gross profit margin of the diversified apparel business is 49.3% (+34.6pct).

　　 Operating net profit margin: The operating net profit margin for the first half of FY2020/21 was 14.3 (+3.5pct), which was mainly due to the increase in gross profit margin of branded down apparel business, OEM business and diversified apparel business.

　　 Expense ratio: The company's total operating expenses in the first half of FY2020/21 were 1.599 billion yuan (+9.90%), accounting for 34.31% (+1.5pct) of total revenue.

1) Distribution expenses: In the first half of FY2020/21, the company’s distribution expenses were 1.209 billion yuan (+8.04%), and the expense ratio was 25.9% (+0.7pct). It was mainly due to the group’s strengthening of the brand and channel construction of the branded down apparel business, with self-operated The increase in the ratio, the increase in rent and store decoration amortization expenses, and the increase in sales staff led to the increase in wage expenses.

　　2) Administrative expenses: In the first half of FY2020/21, the company’s administrative expenses were 390 million yuan (+16.07%), and the expense ratio was 8.4% (-0.8pct), mainly due to the increase in costs caused by the company’s newly granted share options.

　　3. Operational ability: the inventory is sold smoothly, and the cash flow control ability is significantly improved

1) Inventory: The company's total inventory in the first half of FY2020/21 was 2.605 billion yuan (-6.06%), a decrease of 4.4% from the beginning of the year (March 31, 2020). The progress of inventory removal is smooth, and the total inventory is expected to remain stable throughout the year . Among them, raw materials are 659 million yuan (-41.91%), products in process are 23 million yuan (+21.05%), and finished products are 1.925 billion yuan (+18.61%). The inventory turnover days were 200 days, an increase of 28 days year-on-year, mainly due to the increase in inventory at the beginning of the next period under the influence of health incidents.

　　2) Accounts receivable: The company's accounts and bills receivable in the first half of FY2020/21 were 3.817 billion yuan (22.07%), a net increase of 690 million yuan. The accounts receivable turnover days were 98 days, an increase of 12 days compared to the same period last year. This was mainly due to the impact of health incidents. The group increased its support for dealers' payment collection and appropriately extended the payment cycle.

　　3) Cash flow: In the first half of FY2020/21, the company's net cash value was 3.523 billion yuan, an increase of 104.9% year-on-year. The company's cash flow management and control capabilities have been significantly improved.

　　4. Future prospects: transformation and upgrading to build brand efficiency year, internal and external catalyzed increase in volume and price to drive performance growth

　　In terms of internal transformation and reform, the company expects to continue to promote performance improvement through brand enhancement, enrichment of product lines, optimization of channel construction, and new retail and digital transformation, including strengthening the matching degree of business channels, continuously improving store efficiency, expanding membership base, and continuing to pass products. Combine sales and strengthen brand building and other content.

　　 The main theme of the brand upgrade remains unchanged, further consolidating and enhancing the Bosideng brand potential. From the perspective of brand building investment, the company and Hermès former creative design director Gaultier once again cooperated and released a new generation of down jackets by Yang Mi and William Chan through the Shanghai joint fashion show on October 28. Related topics have been read on Sina Weibo. 300 million times, which promoted the Bosideng brand awareness to increase; and through the design and artistic show and products to strengthen consumers' awareness of the new brand image.

　　 Continue to promote new retail and digital operations to create a year of brand efficiency. The company's continuous promotion of new retail operations and digital transformation strategies have achieved high-quality quick response and deep integration of all channels, and continued to improve operating efficiency. On October 23, the company acquired Suzhou Bosideng Logistics Park from the group, which is expected to effectively save costs for the company, promote the integration of logistics distribution and warehousing systems, provide guarantee for the stable operation of the logistics system in the future, and continue to deepen digital transformation.