SEMIR GARMENT(002563)：CHILDREN’S APPAREL HAS HIGH-QUALITY GROWTH;CHANNEL OPERATIONAL EFFICIENCY IMPROVES-格隆汇

机构：中金公司
研究员：Haiyan GUO/Lingyi ZENG/Bicheng CHAI

2021 results in line with our expectations
Semir Garment （Semir） announced that revenue edged up 1.4% YoY in 2021 to Rmb15.42bn, attributable net profit grew 84.5% YoY to Rmb1.49bn, and recurring net profit rose 78.9% YoY to Rmb1.35bn, in line with our expectations. Excluding the impact of Kidiliz, we estimate that Semir’s attributable net profit rose 14.1% YoY.
Children’s apparel business back on high-growth track; casual clothing operations improved. Excluding the impact of Kidiliz, Semir’s overall revenue rose 10.3% YoY, with revenue from the children’s apparel business rising 14.9% YoY to Rmb10.27bn. We believe the children’s apparel business resumed rapid growth mainly due to higher online sales and recovering offline net store openings （up 110 vs. early 2021 to 5,744 stores）。 Revenue from casual apparel business grew 1.4% YoY to Rmb5.03bn. Semir continued its strategic transformation by adjusting its distribution channels, thus recording steady growth despite a net decline in offline store count （down 268 to 2,823 stores）。
GM continued improving; asset impairment loss declined. Semir gross margin （GM） grew 2.4ppt YoY in 2021 to 41.8%, mainly the rising GM of the online business, higher product price markups, and effective control over end-market discounts. The G&A expense fell 1.4ppt YoY to 4.0% mainly due to exclusion of expenses from Kidiliz. The selling, R&D, and financial expense ratios remained stable at 21.9% （down 0.1ppt YoY）， 2.1% （up 0.1ppt YoY） and -0.7% （down 0.2ppt YoY）。 Asset impairment losses fell Rmb192mn thanks to improved inventory structure. Overall, Semir’s net profit margin （incl. minority interest） rose 4.4ppt YoY to 9.6%.
Inventory controllable; receivables turnover improved. Semir’s inventory grew 60.9% YoY to Rmb4.02bn. However, inventory turnover increased only 2 days to 133, mainly due to a higher number of products in 2021 and 2022. The inventory remained controllable thanks to an optimized structure, as is evidenced by a 2.1% decline in inventory vs. 2019. Receivables turnover improved, dropping 7 days YoY to 33.
Trends to watch
Looking ahead, we expect Semir to maintain its leading position in the children’s wear market and post growth that is a double-digit higher than the industry average, increasing its market share. We believe that the firm will continue upgrading its casual apparel business through various measures. We expect the firm to ramp up online sales channels （e.g., e-commerce live streaming and an online-to-offline model） to increase its revenue contribution. Given raw material price hikes, we believe that GM will likely remain stable in 2022 despite an improved product portfolio and end-market discounts.
Financials and valuation
Given that the recovery of earnings in the casual and children’s apparel businesses is contributing incremental earnings through channel upgrades, we raise our 2022 and 2023 net profit forecasts by 5.8% and 4.9% to Rmb1.78bn and Rmb2.08bn. The stock is trading at 10x 2022e and 9x 2023e P/E. We maintain OUTPERFORM and our TP at Rmb10.33 （implying 16x 2022e and 13x 2023e P/E） offering 51.9% upside.
Risks
COVID-19 resurgence; inventory depreciation; disappointing online business and/or recovery of main brands.