JNBY, shortlisted for the Hong Kong Stock Connect: "Fans" contribute over 80% of retail sales

On September 10th, Jiangnan Cloth (3306.HK) was included in the Hong Kong Stock Connect. The stock price opened high and fell during the day, dropping nearly 3% at one point, and ultimately closing down 1.84% at HKD 13.86 per share, with a total market value of HKD 7.19 billion.

In most sell-side research reports, Jiangnan Cloth is described as a "high dividend, undervalued, and sustainable growth target," in line with the current market's mainstream aesthetics.

However, the secondary market seems unconvinced. As of the close on September 10th, Jiangnan Cloth's trailing P/E ratio was only 7.73 times, with a dividend yield of 10.97%.

For comparison, Zara International (0709.HK) in the Hong Kong stock market has a P/E ratio of 9.1 times, while Desheng Fashion (603587.SH), which mainly sells women's clothing, has a valuation of 12.3 times.

Xinfeng (ID: TradeWind01) inquired whether Jiangnan Cloth's relevant personnel would consider taking market value management actions such as share buybacks after being included in the Stock Connect, but as of the time of writing, there has been no response.

Prior to being included in the Stock Connect, Jiangnan Cloth had just released its 2024 fiscal year performance (for the 12 months ending in June 2024). It achieved revenue of RMB 5.238 billion, a year-on-year increase of 17.3%; and net profit of RMB 848 million, a year-on-year increase of 36.5%.

Jiangnan Cloth is positioned as a designer brand group, covering different consumer groups through its eight brands.

In terms of brands, the mature brand JNBY contributed to revenue growth of 17.1% to RMB 2.944 billion, accounting for 56.2% of revenue;

The growth brands including Sketch, jnby by JNBY, and LESS contributed to revenue growth of 17% to RMB 2.184 billion, accounting for 41.7% of revenue;

The emerging brands composed of POMME DE TERRE, JNBYHOME, and onmygame contributed to revenue growth of 28.7% to RMB 110 million.

Citibank's report believes that Jiangnan Cloth has outperformed its peers mainly due to its member loyalty, brand value enhancement, and expansion of new retail channels.

In the first half of this year, Desheng Fashion and another fashion-focused company, Taiping Bird (603877.SH), both saw a decline in revenue and net profit performance.

There are two reasons why Jiangnan Cloth's performance has stood out independently.

Firstly, in an environment of weakened consumer spending power, Jiangnan Cloth's brands are generally positioned at the high end, catering to a more certain consumer base. Similarly, in the field of gold jewelry, the single-store revenue contribution of the top luxury brand Lao Pu Gold (6181.HK) exceeds RMB 100 million, about 14 times that of Mengjinyuan.

Secondly, the community culture advocated by Lululemon seems to have also been embraced by Jiangnan Cloth.

In the 2024 fiscal year, Jiangnan Cloth's active members (members who have made purchases at least twice within 180 days in the past 12 months) reached 550,000, with member retail sales accounting for over 80% of total retail sales.

Among them, the number of members spending over RMB 5000 increased from 260,000 to 310,000, with these members contributing RMB 4.49 billion in sales, a year-on-year increase of 26.84%. Based on this estimate, each member contributes approximately RMB 14,500 in retail sales.

To enhance fan stickiness, Jiangnan Cloth has launched a member-exclusive matching and delivery service called "More Than a Box." After paying the annual fee, members can enjoy services such as trying on at home and try-before-you-buy JNBY's Investor Relations Director Qiang Yilan once publicly stated: "These loyal members bring a strong 'immunity' to the company against the impact of macroeconomic environments."

JNBY insiders told TradeWind01 that the fan economy is one of JNBY's three major strategies.

This is very similar to lululemon's community culture - strengthening the connection between members by holding various activities in stores, thereby enhancing member repurchase.

However, due to its fashion positioning, JNBY faces greater challenges during industry downturns compared to lululemon.

An insider from a domestic sportswear brand once told TradeWind01, "Fashion itself has cycles, with a 'small crisis every three years and a major crisis every five years.' It is not a problem with the designers, but rather the turnover of consumer groups that brands face periodically, making it difficult to grasp the preferences of new consumer groups."

This may be the reason why JNBY is focusing on its private domain - a stable fan customer base is far more certain than catering to different consumers