Preannounced FY22 attributable net profit up over 300% YoY, in line with our expectations
Regina Miracle (RM) preannounced its FY22 (ended March 31, 2022) results: Attributable net profit likely grew over 300% YoY to at least HK$500mn. We attribute the firm’s strong growth in FY22 to the rapid growth of orders from major brand partners as well as improved production efficiency and economies of scale amid the easing COVID-19 conditions. The preannounced results were in line with our expectations.
　　Trends to watch
　　Orders from major brand partners grew robustly thanks to a rapid rebound in global lingerie consumption amid easing COVID-19 conditions. By category, sales of the firm’s lingerie products manufactured with innovative technologies outperformed the pre-COVID-19 level, and sales of sports bras, consumer electronics and footwear products remained strong. By brand, FY22 revenue at the firm’s major brand partner Victoria’s Secret (VS) grew 25.4% YoY, with net profit turning around to US$646mn. Meanwhile, quarterly earnings of the firm’s sports brand partner NIKE and leisure brand Uniqlo steadily recovered over FY21-22. We note that the firm’s orders increased rapidly, driven by rebounding sales of its major brand partners.
　　Production efficiency and economies of scale significantly improved in recent years. The firm’s major production bases in Vietnam and Shenzhen maintained stable and efficient operation in 2H21 despite COVID-19 resurgence. We think this reflects the firm’s superior production management capabilities. The firm’s production efficiency and profitability further improved thanks to its automated and digitalized production as well as capacity expansion. Meanwhile, we believe the firm’s efficient supply chain and stable delivery time amid COVID-19 resurgence helped the firm expand its high-quality base of brand partners in China and abroad, optimizing its client structure.
　　Setting up a lab with Tmall to gain insights into consumer needs. In May 2022, the firm entered into a strategic partnership with Alibaba's e-commerce platform Tmall. The two parties plan to jointly establish a digital industrial lab T-LAB. The firm boasts years of experience in production, R&D and management of lingerie products, while Tmall enjoys advantages in e-commerce consumption data and customer analysis. We expect the firm to enhance its forward-looking new technology and capabilities in new fabric R&D. Moreover, we believe the firm will accelerate its product R&D and commercialization of technologies through Tmall.
　　Financials and valuation
　　Given the firm’s rapid order growth and improved production efficiency, we maintain our earnings forecasts. The stock is trading at 9.8x FY23e and 7.5x FY24e P/E. We maintain our TP of HK$8.08, implying 15.0x FY23e and 11.6x FY24e P/E with 53.69% upside.
　　Risks
　　Disappointing capacity expansion at new plants; rapid rise in labor costs; fluctuating prices of raw materials.