Whenever The Short Selling Organization Sees It, The Listed Companies Will Be Far Away From Such A Rotten Peach Blossom.

Whenever the short selling organization sees it, the listed company will be so far away from such a rotten peach blossom.

03998-HK, a famous Chinese down garment enterprise, has been a little annoyed lately. The stock price has gone through a magic wave, from the dormancy at the beginning of the year to the high level in the middle of the year, and then to the sinking and rebound of the Bonitas after being sold by the short selling agency. Until now, I believe everyone has different views.

The counts of the number of short selling agencies include financial fraud, false earnings of 807 million yuan, concealing related transactions, acquisition of insider trading at an unusual high price (involving women's clothing brands with gross margin of more than 70%), selling property assets at a low price, and paying large dividends to large shareholders. All in all, the accusation is mainly related to related transactions, the transmission of interests to large shareholders, and financial fraud.

After the short selling report, its share price dropped from HK $2.30 to HK $1.73, or 24.78%, and Boston quickly responded to accusations. Many agencies still gave a buying rating. Its share price rebounded sharply after a short fall, rising to 1.99 Hong Kong dollars next month, or 15.03%, and then the share price went up and up to 2.44 Hong Kong dollars.

The shortcoming of the short selling organization, Bosideng

As we all know, the short selling organization issued a negative report, and the advantage of shorting a company is that it will certainly benefit from selling a product before selling the stock, selling the short selling report to force the stock price, and then waiting for the low position to buy the goods to close the warehouse. What is earned is the interest margin between the selling and buying and deducting the proceeds after the interest expense is paid, so the short selling organization's motive is not pure, nor is it pure stock market scavenger. Of course, under such a mess, it will be conducive to the development of the capital market, including the effective promotion of transparency of listed companies, so that investors can have a deeper understanding of the inside of listed companies.

Look at Bosideng. As of May 3, 2019, Gao Dekang, the founder and chairman of the company and chief executive officer, held 71.59% interest. That is to say, the chairman of the board is a large shareholder, chairman of the board of directors and senior management. It is both the ultimate decision-maker of the listed company, the executive actor and the biggest beneficiary.

Based on the above two points, it is not difficult to understand why Bosideng will become the target of short selling agencies. The poor regulatory system of enterprises often provides an opportunity for short selling organizations. However, not all of these companies are suitable for short selling. From the interests of short selling agencies, the price of the target shares needs to reach a relatively high level, that is, the water level with short selling. The short selling organization will try to find the dead hole of the company and borrow the goods short. For example, short selling stocks with a stock price close to zero are basically unprofitable, and the short selling organization has no need to do this useless work. Logically, does this mean that Bosideng's valuation is high?

What is the real situation of Boston in its market segments?

It is true that the short selling agency claims that Bosideng's brand value is zero and its subjectivity. In fairness, if Bosideng's earnings are credible, what is the level of Bosideng compared with its counterparts?

Bosideng, founded in 1994, is the leading brand of down garments in China. Its retail outlets are mainly located in East China and central China, and also throughout North China, northeast, northwest and southwest. The company began to enter the non feather down business in 2009 and bought Bosideng menswear brand at 650 million yuan in cash.

It is worth noting that the men's clothing company is the unlisted asset of Gao Dekang, chairman of Bosideng and the main shareholder of the company. Gao Dekang holding company has 70% interest in men's clothing company, and the other 30% rights are held by third party Sheng Yi. In Bosideng's prospectus, the major shareholders have promised to give priority to the sale of men's clothing to the listed companies. In August 2008, therefore, the 70% interest of the men's clothing company was transferred to the third party by the 385 million yuan (the 100% of the men's clothing company's value was 550 million yuan RMB) based on this data. The listed company had first asked about the listed company. The listed company refused to exercise the preemptive right on the ground of focusing on the main business down jacket and the short history of Target Corp operation, and at the same time obtained the preemption granted by Sheng Yi.

However, a few months later (May 2009), Bosideng bought Sheng Yi's 100% rights and interests from men's clothing and non seasonal clothing products, Target Corp's financial performance as of March 31, 2009, and Sheng Yi's expansion of the British retail distribution network in 2008, at the cost of not more than 650 million yuan.

However, the development of this diversified business is not smooth. Bosideng has recognized the impairment loss for men's clothing business since the 2013 fiscal year. As of March 31, 2019, Bosideng has accumulated a total loss of 292 million 700 thousand yuan for men's clothing.

In 2011, Bosideng bought women's brand "Jesse" and "bang Bao" one after another, and further expanded women's clothing business in 2017 to buy "corleano" and "CORBA."

So in the 2019 fiscal year, Bosideng mainly engaged in four major businesses -- down garments, OEM processing, women's clothing and diversified clothing (that is, the men's clothing that had already worn away, Bosideng's home and other brands), of which the down jacket was still the main source of income, accounting for 73.76% of the total income.

Bosideng VS. Canada goose

When it comes to Bosideng's down jacket, it has to mention Canada's geese (GOOS-US). Canada goose is the world's leading high-end feather clothing brand, entered the Chinese market in 2018, sales are extremely hot.

Boston and Canada geese use the international accounting standards to prepare financial statements, and they all use March 31st as the deadline for the financial year. We may compare the performance of Canadian geese with Bosideng's down garment business.

As of March 31, 2019, Canada geese sold products mainly through DTC (direct to consumers) (online shops and 11 retail outlets in 12 countries) and wholesale channels. In contrast, Bosideng operates directly and wholesale orders (through dealer sales).

In the 2019 fiscal year, Canada's goose income was 830 million 500 thousand Canadian dollars, or about 4 billion 367 million 200 thousand yuan, an increase of 43.86% over the same period last year, while Bosideng's down jacket income was 7 billion 658 million yuan, an increase of 35.52% over the same period. In view of this, the income growth rate of both companies was quite strong, and the income of Bosideng's down jacket business was much larger than that of Canada geese.

Bosideng mainly manages Bosideng, "snow flying" and "ice cleaning" three brands of down garments, of which Bosideng is the main brand, and the auxiliary brand "snow fly" and "ice clean" are used to make up for the vacancy in the low price market. In the 2019 fiscal year, the gross profit margin of the company's down garment business was 57.4%, an increase of 5.9 percentage points, of which the gross profit margin of the main brand Bosideng increased by 4.2 percentage points to 60.6%.

Canada goose, known as high-end brand, has a gross profit margin of 62.23% in fiscal year 2019, up 3.43 percentage points from last year, 1.63 percentage points higher than Boston's main brand gross margin, and its advantage is not obvious.

It is worth noting that in the 2019 fiscal year, Canada goose wholesale income accounted for 48.1%, DTC accounted for 51.9%, roughly average, from its performance data, DTC gross margin reached 75.3%, while wholesale business gross margin was only 48.1%. Bosideng's DTC business accounts for 66.8%, and wholesale business accounts for 32.2%. In this regard, the higher proportion of DTC business with higher profits may be a reason for Bosideng to narrow its gross margin.

In fiscal year 2019, Canada's goose marketing, general and administrative expenses totaled 302 million 100 thousand Canadian dollars, 50.97% higher than the same period last year, higher than the income growth, reflecting the expansion of Canada's geese business. According to the financial data provided by Canadian geese, according to the financial data provided by Canada geese, the operating profit margin in the 2019 fiscal year is about 25.85%, excluding sales costs, marketing expenses and general and administrative expenses, which has increased by 0.9 percentage points over the previous fiscal year.

During the period, Bosideng down wear business's profit margin (i.e. sales deduction, distribution expenses and administrative expenses) increased by 46.6% to 1 billion 390 million yuan, an increase of 1.4 percentage points from the previous fiscal year, to 18.2%, far below the level of the canadian goose, and by a margin margin of 7.65 percentage points. Taking into account that the gross profit margin of the two down garment operators is only 1.63 percentage points different, the financial community believes that 5 percentage points of the operating efficiency gap means that the canadian goose has a better operating efficiency.

According to US $39.90 and earnings per share of 1.31 Canadian dollars, the canadian goose listed on the New York stock exchange has a 39.92 times earnings over the past 2019 fiscal year. According to HK $2.44 and earnings per share of 0.0932 yuan, the HKPC listed Boston 2019 fiscal year earnings to 23.11 times. In view of the larger scale of Bosideng's income, Bosideng's valuation is not high compared with that of Canada geese.

The mistresses of women's clothing

This short selling report focused on the women's clothing business of Bosideng, which believed that there was a transfer of interest to its major shareholders. No matter who is right or wrong, we look at the performance data of women's clothing.

In the 2019 fiscal year, women's clothing business contributed 1 billion 202 million yuan in revenue, only 4.16% year-on-year growth. Gross profit increased 2.95% to 907 million yuan and gross profit margin as high as 75.5%. According to the breakdown data provided by the company, the gross margins of "Jesse" and "bang Bao" are 71.2% and 70.9% respectively, while the gross margin of "corleano" and "CORBA" purchased in April 2017 are 85.3% and 82.8% respectively.

By comparison, the performance of La Natsu Bell (06116-HK) for the 2018 fiscal year ended December 31st showed a gross margin of 65.33%, while the winner's fashion (formerly known as Clay Till) (03709-HK) had a gross margin of 71.52% in the 2018 fiscal year (up to December 31st), and estimated by the financial society that the gross margin of the 03306-HK in the 12 months ended December 31, 2018 was 62.85%.

Why is Bosideng's gross margin of women's clothing so high relative to its peers? The financial club has asked the management on this performance conference. Management: mainly because the top four brands of the company are higher than those of the listed peers, so the gross margin is also better. The price of Boateng's four women's clothing brands is quite high, especially the number one women's brand "Jesse" and "bang Bao". The starting price of the dress in Tmall's official flagship store is close to four digits.

In the 2019 fiscal year, the profit of women's clothing business segment decreased by 18.48% from a year ago to only 150 million yuan, while the segment profit margin dropped from 16% in the previous fiscal year to 12.4%. According to the company, due to poor performance of the cash generating units of "bang Bao" women's clothing business, according to the discount cash flow forecasting method, the impairment loss of goodwill was recognized in the period of 43 million yuan. As of March 31, 2019, Bosideng has accumulated "Jesse" and "bang Bao" to confirm the loss of goodwill impairment of 121 million yuan and 43 million yuan, and as of the end of the year, the two brands of goodwill net value is still as high as 363 million yuan and 482 million yuan.

In a highly dispersed and competitive Chinese women's clothing market, can such a high price bring sustainable growth momentum? I do not think that, from its operating margin, it can be seen that although the price is high, its profit level is not high, and its discount cash flow forecast valuation can also be seen that its cash inflow level is lower than expected. To sum up, Boston's women's clothing business does not seem to be very competitive.

summary

Management has mentioned earlier that the price increase will be progressively increased in the next two years, and the price increase in the last fiscal year is 20%-30%. Compared with the gross profit margin of Boston down garment and women's clothing business, there is room for further improvement, plus the prospect of price increase. However, from the perspective of its operating profit margin, Bosideng's brand appeal and administrative efficiency are not as good as those of its peers.

From the bottom share price chart, Bosideng's share price dropped below HK $1 in June 30, 2015 and returned to the upper level of HK $1 in June 30, 2018. Comparing Bosideng's performance, it also fell to the bottom of the fiscal year ended March 2015, because of the backlog of down jacket and the backsliding of men's business income. Until the recovery of the 2018 fiscal year, the stock price began to pick up.

The motive of short selling agency Bonitas is not pure, but is Bosten innocent little sheep? The mystery of men's clothing business transactions, the absolute control of controlling shareholders in listed companies, the dispute over the interests of women's clothing business, and so on, reflects the company's potential governance problems.

To sum up, Bosideng's valuation is lower than that of its listed counterparts in the United States. In view of the potential consumption and the ability to raise prices in the down market, the performance of Bosideng is expected to further improve. However, corporate governance is like a time bomb. It doesn't know when it will explode. For example, the men's clothing business just a few months ago, the purchase price is one hundred million higher, and the reasons for unsuccessful acquisitions and acquisitions, as well as the continued impairment of the performance impairment loss, are all undenying that the women's clothing business will repeat the same mistakes.

To challenge the voice of the market, the company also needs to speak with strength and performance.