Hongkong Market "Sales Star" I.T: Better Than Big City

Considering the excellent sales performance and steady expansion of the domestic market, we raised the I.T 08 fiscal year and the 09 fiscal year profit forecast by 17% and 24% respectively.

When valuing the I.T, we have raised the target price from 12 times the fair price to earnings ratio to 15 times, mainly considering the efforts made by the company in expanding the domestic retail market (and more importantly, the overall holding of domestic business).

Based on the adjusted 09 fiscal year earnings forecast, we raised the target price from HK $2.32 to HK $2.88.

We are still superior to the big city rating for I.T, but we must point out that in the future, Asahi enterprises may divestiture their I.T shares, so the stock price may be under pressure in the future.

Compared with the independent storefront, the use of franchises has the following advantages: first, 20-22%'s franchise fee accounts for the income ratio of the domestic direct management independent stores of less than 25% of the sales income ratio; second, the management fee will be reduced after the franchising mode is adopted and the pace of expansion can be accelerated with the increase of department stores; and third, the cost of redecorating the franchise stores is 50% lower than that of the independent store.

Of course, it is undeniable that due to the limited sales area, the franchise stores may have fewer products.

But this is not a problem, because at least, so far, domestic consumers are not so hard to figure out.

In the first half of fiscal year 08, the same store sales revenue maintained a steady increase of 37% over the same period last year.

I.T is expected to maintain this growth rate in the next two or three years.

By then, I.T's sales in the domestic market will be comparable to that in the Hongkong market.

From a profit perspective, we believe that the overall net interest rate will increase to 4% in fiscal year 09, and it is estimated that after three years, the overall business will account for about 1/3 of the profits of the I.T group.

In the first half of fiscal year 08, I.T's same store sales revenue increased by 17% over the same period last year, exceeding that of all clothing retailers in Hongkong market.

The excellent performance once again proves that with the increasing taste of consumers, the company's "multi brand, multi-level" business model can effectively divide risks.

Two self created brands, CHOCOOLATE and Venilla suite, have performed well so far, accounting for about 6% of the company's retail sales in the first half of fiscal 08.

This growth continued to the second half of the fiscal year, and the sales revenue for the second half of the fiscal year is even expected to exceed that of the first half.

Thanks to the increase in sales of self created brands (about 40% of total sales), gross profit margin increased by 0.5% during the period, and the reduction in discount was also one of the reasons for the increase in gross margin.

The rental pressure of I.T has been alleviated, and the rent to sales ratio has stabilized at 22.5%.

The ratio of compensation to sales increased from 18.4% in the same period last year to 19.1%, mainly due to the introduction of two new self created brands.

As sales continue to increase, we expect that the ratio of remuneration to sales will be reduced and profit margins will be raised.

In order to expand the sales network, the company plans to increase the retail area by 5% annually.