BELLE's Profits Climbed More Than Expected In 2009.

　 BELLE's profits rose by 26% to 2 billion 533 million yuan in 2009, and revenue increased by 11% to 19 billion 762 million yuan per year, exceeding our expectations. The gross profit margin of the company increased from 51.7% in 2008 to 53.3% in 2009, due to the increase in gross margin and procurement costs. The ratio of operating expenses to turnover decreased from 39.4% in 2008 to 39.1%.

Footwear continues to be the core business of BELLE, which has risen from 54% in 2008 to about 59%. As a result of the higher gross margin of footwear in 2009, the business will boost the gross profit margin of the company in 2010. Income from footwear continued to grow steadily, rising 21% to 11 billion 733 million yuan in 2009, while gross margin increased from 64.9% in 2008 to 65.4%. Benefiting from the warmer market climate, the business's profit increased by 33% in the second half of 2009. Private brand accounted for 92% of the turnover of footwear business, the largest source of revenue for the business. Its revenue increased by 22% yuan to 10 billion 737 million yuan per year, and the revenue of proxy brand and original equipment manufacturers increased by 12% and 53% yuan to 782 million yuan and 214 million yuan respectively.

In 2009, BELLE added a total of 700 shops, bringing the total number of footwear shops to 6750. About 43% of the shops are located in three tier cities, and because these areas are developing towards urbanization, the growth potential for footwear business is increasing. The same store sales increased by 8% throughout the year. Due to the different days of the Lunar New Year and the low base last year, BELLE recorded a huge increase in the same store sales in the first quarter of 2010, representing an increase of 18%, which is better than the 10% growth rate in the fourth quarter of 2009. The company continued to expand its distribution network. In the first quarter of 2010, the number of shops increased to 6898, with a net increase of 148.

On the other hand, BELLE streamlined the shops of sportswear businesses and terminated two second-line brands, resulting in a decrease in the proportion of total revenue from 46% in 2008 to 41% in 2009. The turnover of the business came mainly from its first-line brands, which accounted for 34% of total revenue, and fell 2% to 8 billion 28 million yuan per year, while gross margin fell from 36.1% in 2008 to 35.7% in 2009. Owing to the streamlined and poorly performing shops during the year and the Fila store being deleted, the number of shops in the end of 2009 decreased by 257 to 2862. Closing stores will help BELLE improve gross margin and store productivity in the future.

In 2009, the same store sales growth rate of the company's sportswear business was -6%, while the same store sales growth rate in the first quarter of 2010 was maintained at the level of 4% in the fourth quarter of 2009. BELLE has streamlined its second tier brand, and the first quarter of 2010 has been on track, with a net annual increase of 10.

At the end of 2009, BELLE's financial position remained stable with a net cash value of 5 billion 792 million yuan. Although the number of turnover days increased by 23 days to 161 days, the situation has improved in the second half of 2009 and recorded a decrease of 15 days.

BELLE's extensive brand awareness and its multi brand strategy should ensure its competitiveness and leading position in the mainland market. Therefore, we believe that its share price should be higher than the industry average level. In 2008 and 2007, the company acquired Mabi and Mie Li respectively. It is expected that BELLE's further integration with the two companies should increase its synergy and improve its overall business performance. We suggest that the target price will be 10.92 yuan, equivalent to 25.2 times the expected price earnings ratio in 2010.