Bosideng’s 1HFY25 revenue/NP were up 18%/23% YoY, above market expectations, reflecting effective strategy of launching new products such as sun protective clothing and windbreaker to lower the impact of seasonality. The company is also achieving solid performance during the Double-11 Event, which defies the pressure of consumers trading down. However, we believe investors may still have two concerns: (i) the impact of unfavourable weather in 2024 winter, and (ii) the drag from ladieswear business. We believe some concerns may be overblown, and we remain positive on Bosideng’s FY25 performance, as well as its trajectory to reach RMB30bn revenue in FY26. Maintain BUY as valuation is now attractive relative to its growth.
Key Factors for Rating
1HFY25 performance beat on solid core business. Thanks to solid core business (branded down apparel +23% YoY; OEM mgmt +13% YoY), 1HFY25 revenue was up 18% YoY to RMB8.8bn, while NP was up 23% YoY to RMB1.1bn. We view this set of results above market expectations, given the weak retail environment during Apr-Sept 2024, and the numbers also outperformed most apparel segment peers.
Solid progress of product diversification. In 1HFY25, revenue from Bosideng core brand was up 19% YoY to RMB5,279m, while its GPM further improved by 0.9ppt to 66.3%. We view these numbers positively, reflecting strong sales of new products such as sun protective clothing and windbreakers (c.60% YoY growth). While these products generally carry lower GPM than down apparel, the overall GPM was not dragged, reflecting good retail discount control. We believe this is a good progress and solid evidence towards lowering seasonality impact (2H could account for 66% of yearly revenue).
Decent Double-11 performance but still impacted by weather. Based on the prelim figures of mgmt, Bosideng brand achieved a GMV growth of c.30% in 2024, outperforming most peers, while retail discount and ASP both improved. However, mgmt. viewed that Nov 2024 sales were still below target, given warmer winter in China. We believe this could pose some near-term pressure on the sentiment.
Time needed to erase some doubts. Despite the strong 1H results, we expect there could be factors that investors may prefer to see improvement in 2H, such as slower wholesale revenue of down apparel (+13% YoY), lower store count (-124 stores for core brand) and higher inventory by end of Sept 2024. While we believe these issues are highly seasonal, and could be overcome by the mechanism of small batch restocking orders, we believe concerns will only be eased after the end of peak season, i.e. after the CNY in Jan 2025.
Key Risks for Rating
Key downside risks to our view include: (i) worse-than-expected deterioration in spending power; (ii) unfavourable winter sales, (iii) weak performance of new products, and (iv) surge in material cost.
Valuation
We slightly modify our FY25-27 earnings forecasts by -1%/+1%/+2% to mainly reflect: (i) weaker ladieswear business and higher impairment of goodwill, and (ii) better-than-expected 1HFY25 results, reflecting strong sales of new products such as windbreaker.
After this set of results, we remain positive on Bosideng’s target to achieve RMB30bn revenue in FY26, with net margin expansion. We now forecast Bosideng could achieve a revenue CAGR of 14.5%/18.7% between FY24-FY26, a rather notable outperformer in the apparel segment. Maintain BUY.
Our TP is unchanged at HK$5.2, based on 13x FY26E P/E.