If we exclude the impairment losses associating with the ladieswear business, the adjusted net profit would have increased by 31% YoY, which was simply stunning under the current macro environment. After this impressive 1H25 results, we are still confident on Bosideng’s growth in 2H25E, supported by: 1) various store format upgrades, 2) marketing and promotions in Dec 2024, 3) innovative product launches, 4) product category expansion and 5) potential catch up in wholesale sales growth, etc. Maintain BUY with a new TP of HK$ 6.05, based on 13x FY26E P/E. It is trading at 10x FY26E P/E and 8x yield.
　　Sales trends in Apr-Oct 2024 were rather decent but that had slowed down slightly in Nov 2024. Management mentioned that sales momentum was fairly good during Apr-Oct 2024, but due to unfavorable weather (temperature was warmer than last year), sales trend was slightly below their targets in Nov 2024, even though the sales growth rate was as fast as 30%+ during the double 11 festival (excluding any product returns).
　　However, the FY24E guidance was maintained, as the management is still confident about their strategy in Dec 2024 and onwards. Despite the challenges in Nov 2024, management is still confident on achieving its FY25E guidance of mid-teens sales growth and even faster net profit growth). And we do concur with their view, because of: 1) various store format upgrades (e.g. the concept store in Beijing Taikoo Li Sanlitun, already soft opened but more promotion will be done since 7 Dec 2024), 2) different marketing events (e.g. Crossover with the City Harbin and fashion show at the Sophia Cathedral in Dec 2024), 3) innovative product launches which can still fit the potentially warmer than last year weather, 4) top of the class execution, by management team and frontline staffs (where the sales strategy will be adjusted twice a week, to cope with current environment) and 5) potential catch up in wholesale sales growth in 2H25E (as the retail sales growth for self-operated/ wholesale stores were very much the same in 1H25). In terms of profitability, we are still confident on the potential margin improvement, supported by: 1) at least stable GP margin (e.g. retail discounts still improved from 21% off in 2023 to 19% off in 2024 and ASP still increased by RMB 1,500 in 2023 to RMB 1,740 in 2024, during the double 11 festival), 2) operating leverage induced from the robust SSSG (likely 10%+ or even 20%+ in 2H25E), under the TOP strategy.
　　Maintain BUY and raise TP to HK$ 6.05. We fine-tuned FY25E/ 26E/ 27E net profit forecasts by +0.4%/ -1.4%/ -0.2%, in order to factor in: 1) results beat, 2) better-than- expected gov. grant but also higher-than-expected impairment costs for ladieswear and 3) better-than-expected tax rate and less-than-expected minority interests. Despite the potentially unfavourable weather, we are still very confident on its growth onwards (11% sales and 17% net profit CAGR during FY25E-27E). Plus its attractive valuation (10x FY26E P/E and 8% yield), we maintain BUY with TP of HK$ 6.05, based on 13x FY26E P/E (rolled over from 15x FY25E P/E).
　　 We are also confident on the Company’s mid (RMB 30bn sales target in FY26E) to long-term growth (FY27E and onwards). Supported by different growth drivers, like: 1) upgrades in store formats, 2) upgrades in services and experience for members and VIPs, 3) more new product launches (with more upgrades in fashion and functions) and 4) product category expansion (in order to have a bigger price range and cover more groups of customers), we do think the RMB 30bn sales target in FY26E is feasible. From a more long-term prospective, we are also optimistic, supported by other growth drivers like: 1) brand expansion (e.g. acquisition of the Moose Knuckles brand, which is a high- end international brand with ASP of RMB 6000 - 7000, management’s target now is to double its sales and maintain a healthy net margin in the next 3 years), and 2) overseas market expansion (likely start in the next 3 to 5 years and the Company is now learning how to operate an international brand).
　　Impressive results in 1H25, esp. under the current macro environment. Bosideng’s sales increased by 18% YoY to RMB 8.8bn and net profit jumped by 23% YoY to RMB 2.7bn, both have beaten CMBI est. by 3% and ahead of FY25E guidance of mid-teen sales growth and even faster net profit growth. We attributed the impressive results to: 1) successful new product launches (e.g. goose down windbreaker collection) and category expansion (e.g. sun protective clothing, added the urban light outdoor collection on top of the sun guard collection, plus the outdoor windbreaker collection), 2) resilient offline down apparel sales (where SSSG could be as high as 20%+). Noted that the OEM and ladieswear business were not exciting and the main growth driver is the down apparel business. GP margin seems to be flattish but the underlying was fairly strong because GP margins for Bosideng brand and Snow Flying brand still managed to expand by 0.9ppts and 0.6ppts (the drags are Bengen brand and ladieswear business), and did not seem to have adversely affected by Goose and duck down prices inflation. Even though the staff costs had increased a lot, but thanks to meaningful operating leverage, the NP margin can still increase by 0.5ppts to 13.8%. We do notice that investors were concerned by the 84% increase in inventory level (104%/ 72% for raw materials/ finished goods), but we are not that worried, because this surge could be well explained by: 1) the need to stock more raw materials ahead of potential input costs inflation, 2) changes in Chinese CNY timing (hence booking time would be 1-2 months earlier this year), 3) strategic decision to slow down the goods delivery to its distributors, in order to avoid unnecessary returns and logistic costs. Another issue concerned by investors is the outflow in CFO (cash flow from operation) of RMB 3.5bn in 1H25 (vs just RMB 0.6bn outflow in 1H24), but this could also be explained by: 1) actions to stock more raw materials and 2) delayed booking time of last year’s payment.