FY22 results in line with our forecasts
　　Regina Miracle announced its FY22 results (from April 1, 2021 to March 31, 2022). Revenue grew 39.7% YoY to HK$8.35bn and net profit attributable to shareholders surged 314.9% YoY to HK$521mn. The firm's results grew rapidly in FY22, in line with our forecast. In 2HFY22, revenue rose 23.4% YoY to HK$4.27bn and attributable net profit increased 68.7% YoY to HK$266mn. Revenue and earnings continued to increase rapidly in 2HFY22, mainly thanks to surging growth in orders from core brands, higher production efficiency, and stronger economies of scale.
　　Trends to watch
　　Lingerie business (including bras, corsets, and swimsuits): In FY22, revenue rose 63.4% YoY to HK$4.72bn, accounting for 56.5% of total revenue. Gross profit grew 94.1% YoY to HK$1.19bn, and gross margin grew 4.0ppt YoY to 25.2%. Thanks to the quick recovery the demand from the European and American markets, orders from the firm's largest brand partner Victoria’s Secret resumed high growth, driving up recovery of the lingerie business.
　　Sportswear business: In FY22, revenue rose 37.2% YoY to HK$2.19bn and the gross profit increased 71.9% YoY to HK$514mn. Sales of sports bras resumed rapid growth amid global demand recovery and the continuous upsurge in sports activities. Specifically, orders for sports bras from popular sports brands such as Nike saw robust growth. The company also won high-quality clients to improve its client structure.
　　Structural parts for consumer electronics: In FY22, revenue rose 70.3% YoY to HK$496mn and the GM grew 1.3ppt YoY to 25.2%. Revenue from bra pads and molded products grew 58% YoY to HK$417mn and the GM rose 1.3ppt YoY to 23.5%. Revenue from footwear products increased 27% YoY to HK$363mn. GM of footwear products grew 1.8ppt YoY to 23%, thanks to higher production efficiency after the firm moved its production base to Vietnam.
　　Profitability quickly recovering; overseas production capacity increasing and the capacity utilization ratio rising. In FY22, overall GM increased to 24.5%, with GM of all segments registering notable growth. In addition, revenue contribution from the firm's Vietnam production base grew to 80% in FY22. The capacity utilization ratio of its six factories increased notably YoY, with production efficiency improving. The company expects to increase the number of workers in its new factories to 4,500 by end-2022.
　　Financials and valuation
　　Orders for sportswear and electronic products grew rapidly. We think the capacity ramp-up in the Vietnam production base and the sharp decline in capex will boost profit growth. Therefore, we raise our earnings forecasts by 4.2% to HK$687mn for FY22 and by 3.2% to HK$880mn for FY23. The stock is trading at 9x FY22e and 7x FY23e P/E. We maintain our target price of HK$8.08, implying 14x FY23e and 11x FY24e P/E, offering 58.4% upside.
　　Risks
　　Volatile raw material costs; slower growth of orders from end-market clients; rapid rise in labor costs.