Bosideng: Strong Mid-term Performance, Reinforcing Brand Leadership for Long-term Success

Renowned management guru Peter Drucker once made a statement: Focus is the guarantee of innovation, while distraction often leads to failure. Focus is also the principle that ensures the sustainability of innovative practices. In the real business world, "focus + innovation" has become a guiding principle for the growth of many companies. In the field of clothing, Drucker's viewpoint has once again been validated by BOSIDENG (03998), a global leader in down jackets.

On November 27th, BOSIDENG released its interim financial results for the 2023/24 fiscal year. The financial report shows that for the six months ended September 30, 2023, the company achieved revenue of RMB 7.472 billion, a year-on-year increase of 20.9%; net profit reached RMB 919 million, a year-on-year increase of 25.1%, setting a new historical high for the sixth consecutive year and achieving outstanding results in a bearish market. Based on its strong performance, BOSIDENG announced a mid-term dividend of HKD 0.05 per ordinary share.

BOSIDENG's performance of "increasing revenue and increasing profit" highlights the quality of its growth. This is because the international political and economic landscape is constantly evolving, and how to seek certainty in a market environment full of complexity and uncertainty has become the biggest challenge for many companies. Against this backdrop, BOSIDENG has withstood the complex and ever-changing external situation, as well as the high costs and weak demand in the textile and clothing industry.

"Focus + innovation" solidifies the foundation of brand leadership

According to Zhitong App, the continuous enhancement of BOSIDENG's profitability is rooted in the company's strong strategic determination. Since 2018, the company has firmly adhered to the strategic direction of "focusing on the main channel and focusing on the main brand", clarifying the brand positioning of "global leader in down jackets" and winning the recognition of mainstream consumers by activating the perception of "down jacket expert" in consumers' minds. In terms of business strategy, BOSIDENG continues to strengthen its four core competitiveness: "brand leadership, product upgrades, channel upgrades, and high-quality rapid response", solidifying the resilience of its development.

In terms of brand building, since 2023, BOSIDENG has integrated brand strategy, creative visuals, public relations experiences, and digital content to deepen consumers' awareness and reputation of the brand through brand campaigns and strategies that promote both brand and sales, achieving the goals of brand leadership perception and maximizing sales.

According to Brand Finance, one of the world's top five brand valuation authorities, BOSIDENG has once again been selected as one of the "Top 50 Most Valuable Apparel Brands in the World in 2023" and ranked 47th on the apparel brand list. In the second half of this year, BOSIDENG has further strengthened its brand building efforts. On September 24th, BOSIDENG made its debut at Milan Fashion Week, hosting a global show at Villa Necchi Campiglio in Milan, once again redefining lightweight down jackets. On October 27th, it announced Yang Zi as its brand ambassador, driving continuous increase in brand visibility.

According to the interim financial report, in the first half of the 2023/24 fiscal year, BOSIDENG's brand gained over 3 million new fans and more than 900,000 new members on Tmall and JD.com platforms. As of September 30, 2023, the brand has a total of over 37.6 million fans and over 14.6 million members on Tmall and JD.com platforms. At the same time, BOSIDENG has over 9 million fans on Douyin, with over 1 million new fans.

"The brand's height is supported by the depth of its products" is the underlying logic behind BOSIDENG's brand leadership. In the first half of the 2023/24 fiscal year, BOSIDENG filed a total of 545 patents, including invention, utility, and design patents, providing patent technology and endorsement support for down jacket experts. As of September 30, 2023, the company has accumulated a total of 746 patents, including invention, utility model, and design patents. The high emphasis on product research and development has allowed BOSIDENG to continuously optimize its product research, design, and provide innovative products with a strong sense of value based on the trend of consumer changes, while solidifying the functionality of down jackets.

In 2023, BOSIDENG successfully expanded its incremental business by launching functional products such as sun protection clothing in the spring and summer seasons. In the lightweight down jacket category, BOSIDENG, in collaboration with Chinese and Italian design teams, overcame the challenges of combining different materials and retro with modern elements. BOSIDENG created 6 fashionable items by cross-border splicing of down jackets, and the entire series of down jackets used internationally certified 700+ fill power goose down, producing professional products that are more diverse, lighter, warmer, and more fashionable than traditional down jackets, opening up a new pattern of cross-season and multi-scene fashion wear.

With the rise of outdoor sports, the wearing scenarios for functional down jackets continue to expand. BOSIDENG has launched a "breathable" down jacket based on market demand. It is reported that the breathable down jacket uses technology protective fabric, and the three-in-one detachable design connects BOSIDENG down jackets with outdoor jackets, further expanding the usage scenarios.

Sales performance is the best indicator to test product and brand strength. In the first half of the 23/24 fiscal year, BOSIDENG's down jacket business achieved revenue of approximately 4.94 billion yuan, accounting for 66.1% of total revenue, a year-on-year increase of 28.1%. Among them, BOSIDENG brand achieved revenue of 4.421 billion yuan, a year-on-year increase of 25.5%; OEM processing and management business achieved revenue of approximately 2.043 billion yuan, accounting for 27.3% of total revenue, a year-on-year increase of 7.8%; women's wear business achieved revenue of approximately 393 million yuan, accounting for 5.3% of total revenue, a year-on-year increase of 15.4%; diversified clothing business achieved revenue of approximately 96.38 million yuan, accounting for 1.3% of total revenue, a year-on-year increase of 9.8%. Channel and supply chain upgrades have taken BOSIDENG to new heights in terms of quality and efficiency, according to Zhitong App. In addition to the continuous sales growth, "improving quality and efficiency" is also a key theme in BOSIDENG's earnings report.

The report shows that in the first half of the 2023/24 fiscal year, BOSIDENG's accounts receivable turnover days decreased by 20 days YoY to 64 days. During the same period, the company's inventory turnover days decreased by 21 days YoY to 160 days. The decrease in inventory turnover days can be attributed to two main factors. Firstly, the company has maintained a relatively low proportion of initial orders, and has implemented a pull-based replenishment and fast return mechanism, effectively promoting the integrated operation and management of products across all channels. Secondly, due to the company's effective management of past inventory and product operations, the initial level of inventory has returned to a relatively healthy state.

In the first half of the 2023/24 fiscal year, BOSIDENG continued to transition from a flexible fast-response model to a top-speed agile supply model, achieving a replenishment availability rate of up to 99% for top-selling products. This truly addresses the urgent needs of the market, ensuring that popular products are not out of stock and unsold products are not produced. While maximizing the achievement of sales targets, this approach also drives the synergy of the value chain and becomes one of BOSIDENG's core competitive advantages.

During the 2023 "Double 11" shopping festival, BOSIDENG achieved remarkable results, ranking first in women's clothing and second in men's clothing on Tmall, first in clothing on JD.com and Vipshop, and first in women's clothing on Douyin. Behind these achievements is undoubtedly the company's ability to deliver high-quality and fast responses.

Furthermore, BOSIDENG's channel upgrades also reflect the company's commitment to improving quality and efficiency. In terms of offline channels, BOSIDENG continues to steadily improve the existing channel structure, layout, quality, and terminal image. On one hand, by focusing on "improving quality and efficiency of individual stores," the company enhances the operational capabilities and efficiency of its stores. On the other hand, by further strengthening the channel structure, layout, quality, and terminal image, the company implements more refined management and operation of channel construction. At the same time, through projects such as "Top Stores" and "Top Store Managers," the company effectively matches channel resources.

With its promising long-term growth prospects and solid operating performance, BOSIDENG has received positive evaluations from several institutions before and after the release of its mid-term financial results.

Guosheng Securities stated in its research report that considering BOSIDENG's recent strong sales performance, the expected impressive performance during the "Double 11" shopping festival is expected to drive an accelerated YoY sales growth rate for the main brand in the second half of the fiscal year. The company's brand upgrade and channel optimization are expected to contribute to continued profit growth. The estimated net profit attributable to shareholders for the fiscal years 2024 to 2026 are 2.613 billion yuan, 3.105 billion yuan, and 3.649 billion yuan, respectively. The "buy" rating is maintained. Huaxi Securities believes that in the long term, there is still room for improvement in BOSIDENG's market share. Considering that the company's store efficiency is better than expected, the company's revenue forecast for the fiscal years 2024 to 2026 is maintained at 18.5 billion yuan, 20.6 billion yuan, and 23.1 billion yuan, respectively. The forecast for net profit attributable to shareholders for the fiscal years 2024 to 2026 is adjusted to 2.67 billion yuan, 2.955 billion yuan, and 3.27 billion yuan, respectively. The "buy" rating is maintained.

GF Securities expects BOSIDENG's EPS for the fiscal years 2024 to 2026 to be 0.24 yuan/share, 0.28 yuan/share, and 0.34 yuan/share, respectively. Referring to comparable companies, a price-to-earnings ratio of 22 times is given for the fiscal years 2023/24, with a fair value of 5.64 Hong Kong dollars/share. The "buy" rating is maintained.

Zheshang Securities predicts that BOSIDENG's revenue for the fiscal years 2024 to 2026 will be 19.5 billion yuan, 22.4 billion yuan, and 25.7 billion yuan, respectively, with year-on-year growth rates of 16%, 15%, and 15%. The net profit attributable to shareholders is expected to be 2.61 billion yuan, 3.1 billion yuan, and 3.67 billion yuan, respectively, with year-on-year growth rates of 22%, 19%, and 18%. Zheshang Securities believes that BOSIDENG's current valuation is at a low level. Considering its light channel strategy, sufficient new product reserves, and the arrival of the peak season, the "buy" rating is maintained.

In the view of Zhitong App, taking a long-term perspective, under the strategic goal of "focusing on the main channel and focusing on the main brand," BOSIDENG, starting from brand leadership, continuously improves its product, channel, and brand strengths, focuses on its main business, and reshapes the positive feedback of being the "down jacket expert" in the minds of consumers. This has formed a unique competitive barrier and core competitiveness. BOSIDENG, which achieves multidimensional advancement in brand, product, and channel in the new stage, will continue to increase its intrinsic value in the process of high-quality and sustainable development.