How Can We Maintain Sustained Growth In The South Of The Yangtze River Through ROE?

In the global market turmoil, the Hang Seng Index fell only 1% in the 33 trading days.

When the mud goes down, it is the opportunity.

What kind of "flying knife" can be connected? The answer must be a good company.

ROE is a "anchor" to measure whether a company has investment value. Generally, a high ROE stock that can invest in a long-term stable market can get significant excess returns.

However, in accordance with the "long term, stable and high" ROE standard, the companies selected are basically the leading white horse in various fields. The company has stable management, marginal changes in valuation and performance. Most of the recognition of the market has been reflected in the stock price, and it is not certain whether the ROE will remain so long and stable in the future.

The "big white horse" of A shares has also experienced a large-scale sell-off of profits in recent days. At this time, the "long term" dimension is focused on the short and medium term boom, and the use of more stringent valuation requirements may be more appropriate.

A stable high ROE company has significant industry characteristics, and the probability of the birth of such a consumer plate is even greater.

Starting from this sector, it is easier to find potential white horse stocks.

"Consumption upgrading" is a powerful promoter of the consumer sector.

At present, the rise of personalized demand, the leading consumption of post-90s, and the leading industry leader (03306) are in the period of high prosperity.

Hidden ROE

At first glance, the ROE data of Jiangnan cloth clothing over the years is very worrying.

(source: wind terminal, corporate earnings)

But if ROE is disassembled into DuPont's three indicators (sales net interest rate, total asset turnover and equity multiplier), everything will be different.

Let's look at the equity multiplier, which represents the assets owned by shareholders in every 1 yuan. It can reflect the size of the financial leverage of enterprises. The larger the equity multiplier, the smaller the proportion of capital invested by shareholders and the greater the financial leverage.

From the above, we can see that in the highest ROE of 2015 in the Jiangnan Buyi ROE, its equity multiplier reached 3.45, while the average value of the industry was about 1.67 during the same period, which means that the company over 60% of this year was almost heaped up by high leverage.

Since 2016, the ROE of Jiangnan Buyi has declined to varying degrees, but the reason is that its asset structure has improved, and the equity multiplier has stabilized at around 1.5.

Compared with 62.6% of the gross profit, the net interest rate of 18.84% in the south of the Yangtze River does not seem much convincing, but it is still 1 times higher than the average net interest rate of 9.77%.

Textile and garment industry is difficult to coexist with high gross profit and high net profit. This is due to the high cost of marketing in the industry. The asset turnover rate is more suitable for evaluating the product characteristics and sales strategy of the apparel industry.

In the middle of 2017, the average turnover rate of clothing industry was only 29%. Compared to that, the turnover rate of 76% of Jiangnan Buyi was excellent, and this data also represented the strong sales ability and short-term solvency of the company.

To sum up, from the perspective of ROE and the DuPont index of dismantling, the characteristics of "high turnover rate, low debt and relatively high net profit" have the potential of white horse share in the south of the Yangtze River.

So, what is the power to support ROE in the future?

In the growth period of enterprises, the most direct way to improve ROE is to increase the profits of enterprises. With the acceleration of growth, enterprises' attention to profits will turn from increasing sales volume to increasing sales profit margin.

From the above point of view, Jiangnan cloth clothing has shown better growth ability in recent years.

Its net profit growth rate has increased by more than 10% over the past 2 years, while net interest rates have also increased steadily.

These two sets of data are enough to lock Jiangnan Buyi in the performance cycle.

Standing at the company's point of view

ROE usually looks at problems from the perspective of shareholders. It only measures returns from equity, without considering the capital structure and liabilities of the company.

And ROIC is more from the perspective of enterprises, considering the equity and creditor's rights comprehensively, combining these two indicators to analyze or help decision-making.

ROIC is also known as the rate of return on invested capital, which is used to measure the effect of investment funds.

The advantage of ROIC is that it excludes the impact of non operating income and capital structure on the business capability of an enterprise, which can more accurately reflect the profitability of the core business of an enterprise.

The best combination of ROE and ROIC is that the two values are all higher, and ROIC is greater than ROE.

The most typical example is Guizhou Moutai, Guizhou Moutai has almost no profit and loss other than main business every year. After excluding non operating cash, ROIC is close to 50-60%, ROE is around 25%, Moutai's super high ROIC shows that the company has very high brand value and priced moat.

However, this situation obviously does not apply to Jiangnan cloth.

(source: wind terminal, corporate earnings)

The ROE and ROIC combination of Jiangnan Buyi has a relatively general performance. In 2015, ROIC surpassed ROE, and the reason is that its net assets are too low, rather than profits after interest tax.

However, taking into account the characteristics of the apparel industry's high gross profit and low net profit, it is also reasonable to maintain the high level of ROIC in the south of the Yangtze River. The gap between the two indicators of ROE and ROIC is narrowing and stable.

How to maintain performance growth?

In the future, can Jiangnan cloth clothing maintain the financial index "beautiful" growth?

Designer brand has always been difficult to enter the mainstream market, but Jiangnan Bu Yi has done the wind and water.

Thanks to the upgrading of consumption, young people in this scenario no longer pursue big brands. They prefer the independent designer brand to meet the needs of individuation.

And this will bring sustainable development to the performance of Jiangnan cloth.

1. brand life cycle sustainability

Jiangnan cloth dress was founded in Hangzhou in 1994, and gradually developed into a leading brand designer in China.

At present, the company has formed four business of women's wear, men's wear, children's wear and household goods, and has six brands, such as JNBY, sketch and so on.

The brand design of Jiangnan cloth clothing emphasizes the "single positioning", positioning each brand in a niche market, rather than using a brand to serve different differentiated needs.

Jiangnan cloth management has explained that the company does not use the existing brand to expand the age range, but uses the new design localization to look at the new market.

This is equivalent to meeting the needs of a fragmented market.

Jiangnan Buyi also said that it will form an income growth baton through continuous internal incubation or new brand acquisitions.

The significance of this is that when the light consumption turn of the year appears, Jiangnan cloth can quickly launch relative brands without the need for an overall pformation.

The life cycle of the brand will also continue.

2. consumer purchase cycle sustainability

Jiangnan Buyi CFO Frank Zhu once said, "loyal fans are the biggest intangible assets of JNBY".

The customers' age structure in the south of the Yangtze River covers from their teenage years to 70 years old. How faithful is their customers? According to the latest performance data released by Jiangnan cloth, members have contributed 14.6 billion in total revenue of 2 billion 332 million.

according to

Headline data statistics, its

JNBY ranked the first in the domestic women's clothing for 2 consecutive years on WeChat platform.

The age of JNBY fans is at the age of 25-40. At this stage, women gradually enter the role of "mother", and they will substitute their consumption habits to the other half and children, and produce the demand for men's wear and children's clothing.

And when the clothing level can be basically met, the concept of extending the home brand JNBY HOME becomes a matter of course.

Therefore, with the growth of the loyal consumer groups in the south of the Yangtze River, the cycle of their purchase will also continue.

Analysts believe that in view of the large membership base of more than 1 million 200 thousand member accounts, we believe that we can achieve sustainable development through cross selling between brands in the future.

3. sustainable growth in revenue

Because there is no need for celebrities to speak, the marketing expenditure of Jiangnan Buyi is very low, which ensures that it has a net interest rate higher than that of the industry.

In addition, at present, consumption upgrading is being pmitted to three or four line cities. Jiangnan Buyi is the leading designer clothing brand in China, with 9.6% market share, and its business income will continue to increase in the wave of consumption upgrading.

epilogue

In this way, the growth of the performance of Jiangnan Buyi is very attractive. How much is it worth measuring?

When ROE is used to analyze enterprises, it is more inclined to use ROE/PB index to analyze the valuation, which is used to measure the rate of return on investment, that is, how much net profit can be generated by the investment of a dollar.

According to wind data, as of March 28th closing,

The average ROE/PB value of the textile industry is 1.66, while the ROE/PB value of Jiangnan cloth is 4.69, which can be said to be very underestimated.

To sum up, the 50% increase in those 10 trading days in February may be just the beginning for the south of the Yangtze River.