Baosheng International'S Financial Fraud: Gap From Big Brother

I do not know when, from time to time, the circle of friends has taken photos of running kilometers and fitness. When I do not know, the square dance has been popular in the north and south of the river. I do not know when the gym has become the standard of the office building.

Of course, sports fitness is not only the label of young people, but you may have this impression (left). In fact, people may be like this.

In order to commemorate the successful hosting of the Beijing Olympic Games, the State Council has approved the establishment of the National Fitness Day every August 8th from 2009. The national fitness program aims at improving the national physique and health level in an all-round way. Focusing on teenagers and children, it advocates that all the people should take part in more than one physical activity every day, learn more than two kinds of fitness methods, and do physical fitness once a year.

In January 15th this year, the State Sports General Administration and the national development and Reform Commission released the action plan to further promote sports consumption (2019-2020 years).

The main objectives include: by 2020, people's sports consumption concept has been significantly improved, sports consumption habits have been gradually developed, sports consumption facilities have been improved, sports consumption environment has been optimized, sports consumption products and services have been more abundant, and sports consumption policies have been more sound.

In the newly concluded executive session of the State Council, measures to further promote sports fitness and sports consumption were also made clear.

Under such a big background, the company that sells sports shoes and clothing sells cola. Today we are going to talk about 3813.HK, a giant in the field of sports shoes and clothing distribution in China. The vision and mission of the company is to "let sports into your life".

First, the big shareholder "to be a monster" exposes financial fraud, and privatization finally fails.

Feng Yun Jun has also listed many listed companies, but it is the first time that he saw the company exploding financial fraud.

This is like playing together the werewolf kill. During the first day, no one has spoken yet. Without any information, the werewolf jumped out and said, "I let myself go".

Next, let's take a look at Baosheng International's original operation.

In January 8, 2017, the company announced that some sales records were wrong in December 2016, and CEO and Hird Chen Guolong of the company left one after another. Then, the company's share price fell 22% to HK $1.54 on the same day, the largest drop in the intraday price of more than 37%.

The company's sales revenue in December 2016 was about 1 billion 400 million yuan, an increase of 30.1% over the same period, an increase of 14.8%.

At that time, the market speculated that this was caused by the company's deliberate suppression of share prices. And so on, why should companies deliberately suppress share prices? Let's look down.

In the following year, the company's share price slowly dropped from HK $1.54 to HK $1. Then, in January 21st, the company announced that the holding company, Baocheng industry (9904.TW), would make a 37.5% stake in acquiring company, which was HK $2.03 per share, a premium of about 31.82% compared to the closing price of 18 in January.

The company's share price has fallen by about 25% at the time of the scandal when the company explode the "financial fraud" scandal. If it is purchased at the same premium of 31.82%, the company can save about HK $2 billion.

However, after a period of consultations, the company announced in April 9th that the privatization plan failed because the proportion of shareholders voting against shareholders at the shareholders' meeting was about 23%, which was more than 10%. It seems that minority shareholders believe that even if the premium is 31.82%, the bid is still underestimated and will not be bought.

So we can see that the company's share price has gone through a number of jump ups and falls in the past year or so, up and down, or not.

Although the privatization of the company ended in failure, business continued.

Next, we will recognize the fundamentals of a company.

　 Two, business analysis

1. The wind of sports starts at the end of Qingping.

As we mentioned before, sports fitness is becoming more and more popular among our population, but if you want to say how much the sports fitness population has increased, it's really hard to say. However, we may be able to observe sideways through a sport.

Marathon is a sport that everyone can participate in, and there are official data provided by competitors. We will take a look at the trend of sports in recent years.

Marathons are mainly divided into three horses, half horse and four marathons, and 5 kilometers are called "mini horses". There are multiple classifying, friendly to beginners and low entry threshold, which is very popular among sports fans in China in recent years.

According to statistics, in 2017, China's large and small marathon events reached 1102 games, with an average of three events per day, compared with 328 in 2016 and three times in 2017.

Behind such intensive marathon arrangements, the number of participants is also growing steadily. According to statistics, the number of Chinese marathon races reached 4 million 980 thousand in 2017, and only 400 thousand in 2011, a 10 fold increase.

Although marathon is just one of a variety of sports, it can be seen from this sport that the tide of national fitness has long been overwhelming.

If demand arises, there will be consumption, and benefit from the national sports fever. Although the growth rate of total retail sales of consumer goods continues to decline in recent years, the market for sports shoes and clothing has achieved steady growth. In 2017, the scale of China's sports shoes and clothing market reached 212 billion 100 million yuan, an increase of 12.5% over the same period, and the growth rate of the market scale remained stable during the 2015-17 years.

In the recently published two-year development plan, the State Sports General Administration and the national development and Reform Commission predict that by 2020, China's sports consumption will reach RMB 1 trillion and 500 billion yuan, of course, this is not just sports shoes and clothing, but also sports equipment.

2, operating income is high.

As mentioned above, with the improvement of healthy life and personal image consciousness, and with the international large-scale sporting events being held one after another, consumers are paying more attention to sports and fitness. Baosheng international is a giant in the field of sports shoes and clothing distribution.

Speaking of Baosheng international, old fellow iron may have expressed a face, but never heard of it. But YY sports Sheng Dao sports is definitely not new to you. YY sports Sheng Dao sports is the independent channel brand of Baosheng international, mainly engaged in the sales agency of sports brand.

For example, if we want to buy sportswear of Adidas or Nike at ordinary times, it is usually not a direct shop of the manufacturer, but more like an agent shop like Sheng Dao sports. Baosheng international is one of the three largest sportswear retailers in China.

As distributors, Baosheng international mainly buys goods from brands, such as Adidas and Nike, and then sells them to consumers. The difference between them is the main source of revenue.

Under the background of national fitness, Baosheng international business income increased year by year. Upstream, Baosheng International's main suppliers are Adidas and Nike and other internationally renowned sports brands, products wide audience, high quality products. Downstream, stores have wide coverage, high market share, large contact area with consumers, and smooth sales channels.

In 2018, the company achieved operating income of 22 billion 680 million yuan, an increase of 20.4% over the same period, compared with CAGR in 2009 and 12.6%. And in the 2016-2018 years, the company's revenue growth has increased year by year, from 8.7% in 2016 to 20.4% in 2018. In recent years, the company's business has been growing at an accelerated pace.

In the first half of 2019, the company achieved operating income of 13 billion 370 million yuan, an increase of 19.4% over the same period last year. This growth is attributed to the trend of China's sports and leisure activities and the participation rate of sports activities, the continuous development of the company's retail business, and the rapid growth of online business.

Although the company's revenue growth is attributable to the continuous development of retail business and the rapid growth of online business. However, the company did not disclose the relevant data of online business in the earnings report, so it is impossible to measure the impact of online business on the overall business of the company temporarily.

In addition, we observed that the number of Direct stores and franchisees increased steadily. As of June 30, 2019, the company's retail network consisted of 5895 direct retail outlets and 3756 franchisees, with a total of 9651. In 2017 and the end of 2018, the total number of stores was 8778 and 9199.

Although the company did not disclose the same store sales data, but from the growth rate of nearly three years, the growth rate of operating income is much higher than that of the number of stores. Feng Yun Jun speculated that on the one hand, because of the nationwide fitness boom, the same store sales data grew, on the other hand, perhaps as the company said, online business broadened the company's sales channels.

The company divides revenue sources into two categories, one is sales sportswear and footwear products, the other two is the sales of franchised counters. Sales of sports shoes and clothing accounted for the largest revenue, accounting for 99.5% in the first half of 2019.

Let's take a look at the profitability of the company. Gross profit margins in 2016-18 years were 35.5%, 35% and 33.5%, respectively, showing a downward trend, rising to 34.5% in the first half of 2019. The company said that the increase in gross profit margin in the first half of 2019 was mainly due to the reduction in discount offered to customers when they sell their products.

Meanwhile, the operating profit margin in the first half of 2019 also improved to 5.8%. In 2018, the operating profit rate was 4.3%.

In addition, the gross profit margin of the company has improved significantly during the period of 2014-16. In the annual report, the company first said that the improvement in gross margin was mainly due to a decrease in retail discount, and the reduction was due to the warmer weather in winter, so the sales of sportswear were better than in previous years. Unexpectedly, the climate warming problem we are discussing every day can help companies improve their performance from here.

3, operating expenses have been improved.

Is the increase in operating profit mainly due to the reduction of discount? Let's take a look at the company's expenses.

The company's total operating expenses dropped by 1.6 percentage points to 30.5% by controlling expenditure, optimizing staff costs and closing profitable stores. Expenses are mainly used for organizing activities, upgrading new concept shops and shops, optimizing distribution and digital channels, and encouraging sales teams.

Look at the subdivision. The proportion of sales expenses has improved, from 28.3% in 2017 to 26% in the first half of 2019, and the proportion of management fees was relatively stable, from 3.6% to 4.1%. By the end of 2018, the company had about 32000 employees.

In order to expand popularity and to mobilize people's enthusiasm for sports so as to facilitate sales of products, the company has organized a series of events, such as cross-country running, basketball and marathon, and other training courses such as baseball, basketball and rock climbing.

4. The top five Suppliers account for 99.98% of total purchases.

The company's top five customers account for less than 30% of total sales. The top five Suppliers account for 99.98% of the total purchases of the company, accounting for a very high proportion. We must say that only five of the previous suppliers can not buy too much. Moreover, the company purchases 54.4% of the total purchase amount to the largest supplier.

Although the company did not disclose who the top five customers are, according to the relevant information disclosed in the prospectus and recent news, it is easy to see that the first largest customer is not Adidas or Nike.

Although Adidas and Nike are the two giants of sports brand, their performance is very robust. (for more analysis of Nike, please look at Nike: memories of youth and sweat, and fruitful earnings). Baosheng international will not suffer the risk of declining performance because its brand is not recognized by everyone.

However, it should be noted that the purchase amount to a single supplier exceeds 50% and the dependence on large suppliers is high. In the event of a change in the agreement between the supplier and the supplier, the impact on the company's performance will be enormous.

Three, peer comparison - and BELLE's top two international champion.

Speaking of sports brand distributors, besides Baosheng international, another big tycoon is Tao Bo international. And Tao Bo international is once the "shoe king" brand of BELLE. Prior to its privatization in the capital market, BELLE holdings had been delisted from the privatization of the HKEx in 2017, and now its sports shoe and clothing agent, Tao Po international, is seeking to go public.

Just now, Bo international has issued a prospectus. Today we compare the two big distribution giants, Baosheng international and Tao Bo international.

According to the international prospectus, in fiscal year 2018 (Note: February 28, 2019 as the last day of fiscal year 2018), the sales volume was 37 billion 500 million yuan and the market share was 15.9%, ranking No. 1.

A, the second largest company, has a sales volume of 27 billion 300 million yuan and a market share of 11.6%. By inference, the company A mentioned here is Baosheng international. The 27 billion 300 million yuan disclosed here is slightly different from the sales volume of Baosheng international, which was mentioned in 2018, which is 22 billion 680 million yuan in 2018. The main reason for this is that the international financial year ended in February 28th, and Baosheng international took December 31st as the last day of the financial year.

At the time of the analysis, we still take the data disclosed in the annual report as the criterion.

Careful readers may have found that in the field of sports brand distribution, the market share from second places is no more than 1.5%, and the market share of the third ranked company is only 1.4%. The two giants Baosheng international and Tao Bo international have absolute advantages.

In addition, the market share of the two giants with a market share of more than third was 15.9% and 11.6%, respectively. After third, the market share was less than 1.5%, indicating that the market share was relatively scattered. At this time, if the two giants adopt the strategy of compressing profit space for market share, the resistance of small companies is not large.

The growth rate of international revenue is higher than Baosheng international. In the past three years, the revenue growth (Orange Line) was relatively stable, and the revenue growth in 2017 and 2018 was 22.4% and 22.7% respectively. In the same period, Baosheng international revenue growth (Huang Xian) increased year by year, to 16% and 20.4%, but it was always lower than Tao Bo international.

As of February 28, 2019, there were 10223 stores in the national retail network, including 8343 direct outlets and 1880 stores operated by downstream retailers. Baosheng international has 9199 stores, including 5648 Direct stores and 3551 franchised stores.

In the total number of stores, Baosheng international has lost about 1000 stores, but there are fewer than 2700 outlets. Generally speaking, the company's control over direct stores is superior to that of franchised stores and downstream retailers, and the efficiency of Direct stores is higher in terms of overall sales strategy and store upgrading.

According to Baosheng international prospectus, in December 31, 2007, there were 1324 direct outlets and 2232 retail outlets, but we saw that retail affiliates accounted for only 17% of sales revenue, while the sales revenue of Direct stores accounted for 51.6%, so direct stores were the core revenue source of the company.

Although the two stores did not disclose historical same store sales data, nor did they disclose the latest income of direct shops and franchisees, but according to the report of Frost's Sullivan, which is used in the international stock prospectus, we can see that the ranking of the average sales of Direct stores is ranked first in the world.

From a profit margin perspective, Baosheng international has a gap with big brother. During the 2016-18 period, the gross profit margin of Tao Bo international was 43.2%, 41.6% and 41.8%, while Baosheng International's gross profit margin was 35.5%, 35% and 33.5%.

The gap between the two business profits increased gradually. During the 2016-18 period, the international operating profit rate was 8.9%, 8.5% and 9.9% respectively, while Baosheng international operating profit margin was 5.7%, 4.1% and 4.3%.

From the perspective of growth and profitability, Baosheng international is slightly inferior to Tao Bo international.

Baosheng international sales accounted for a decrease compared with the same period last year, but the proportion of sales expenses of Tao Bo international increased year by year. In 2018, Baosheng international sales accounted for 26.9%, which was lower than that of 28.4%.

For a distribution company, the turnover time of inventory is one of the core success factors that need to be focused. If the turnover time is low, it means that the goods are selling fast, and is the core competence of the distribution company not the sales power?

Baosheng international stock turnover is always higher than that of Tao Po international nearly 50 days. In 2018, Baosheng international stock turnover day was 149 days, while Tao Po international was only 103 days. Although Baosheng international stock turnover is higher than that of Tao Bo international, it is better than the industry average of 180 days.

Baosheng international asset liability ratio has been increasing year by year, from 32.7% to 46.9% in 2015. The debt ratio of Tao Bo international is even higher. During the 2016-18 period, the asset liability ratio of the international competition surged from 59.8% to 88%.

Obviously, the international financial leverage ratio is far higher than that of peers. This is closely related to the MBO mode adopted by PE privatization. In order to obtain high return on investment, it is an inevitable option to increase leverage significantly on the basis of relatively stable cash flow of the invested company. And to the current stalls, re listing to reduce the debt ratio is inevitable.

Feng Yun Jun has a look. In the composition of the debt liability terminal of Tai Po international, leasing liabilities and payables account for a large proportion. Baosheng's liabilities are mainly made up of payables and banks and other borrowings.

Four. Financial analysis

1, stable cash cycle

In 2018, Baosheng International's cash cycle period was 161 days, which was relatively stable in the past two years.

Compared with the 2011-13 years, the inventory turnover days in recent years steadily rose slightly, in 2018 for 149 days, the company said that in a drastic market, the stability of inventory turnover days benefited from the increase in the sales rate during the quarter, as well as the acceleration of inventory clearance and enhancement of seasonal purchase plan, so we saw that the gross profit margin of the company in 2016-18 years is in a downward trend.

Because of the distributor attributes of Baosheng international, the inventory is basically made up of finished products.

Accounts receivable days remained stable, and the days of receivables in 2018 were 27 days. The average credit period for a company's agreement with a single trade customer is 30-60 days, and the days of receivable are basically in line with the credit period.

Finally, we will observe the change of accounts payable days. Since 2010, the days of accounts payable have been decreasing year by year, and the days of accounts payable in 2018 are 15 days.

Feng Yun Jun compared the composition of payable loans and other payables in the past year, and found that only a small proportion of the total payable was payable and receivables, and it did not show a decreasing trend year by year, so at least it could be ruled out because of the tightening of upstream sports brands.

2, debt interest rate is low.

As mentioned before, Baosheng international asset liability ratio, though not as exaggerated as that of Tao Bo international, has shown a trend of sustained growth in recent years. Let's look at the composition of the liabilities side. In 2018, Baosheng international liabilities amounted to about 6 billion 200 million yuan, of which 2 billion 100 million of the payable and other payables were payable, and banks and other borrowings were about 3 billion 530 million yuan.

Accounts payable have been analyzed before. There is not much explanation here. Let's look at the composition of banks and other loans. In the total amount of 3 billion 530 million yuan of banks and other borrowings, it is necessary to repay about 2 billion 600 million yuan in one year, the lending rate fluctuated between 1.49% and 6.7%, and the median interest rate is 4.1%, relatively low.

3, mobility without pressure

The company's interest coverage has declined in recent two years, but in 2018, it also had 9.8, far above 1. Liquidity was strong and there was no interest payment pressure.

4, shareholder returns

In the past 10 years, the total amount of free cash flow generated by the company was 480 million yuan, while the company provided a total of 370 million yuan for shareholders.

The company's capital expenditure mainly includes supporting the upgrading of existing shops, expanding new concept shops and large shops, and providing resources for its online business and sports service platform.

Although the cash flow of business activities in the past 10 years totalled $2 billion 570 million, the company has acquired a large number of property, machinery and equipment for expansion, making the total amount of free cash flow negative. Even so, the company also provided shareholders with a reward of 370 million yuan.

epilogue

Under the background of national fitness wave, the company is in a fast growing industry. Baosheng international has established good cooperative relationship with international brands such as Adidas and Nike, and has a long history of cooperation.

However, the amount of procurement to a single supplier exceeds 50% of the total purchase amount, which still shows that the company has a high degree of dependence on large suppliers.

The company's current market share is 11.6%, ranking second, after second wave international. After the third ranking, the market share of the company is less than 1.5%, and the dispersion of the remaining two giants is higher. From the perspective of market share, the company has a higher voice.

Compared with Tao Bo international, the growth and profitability of the company are slightly inferior. The company needs to be vigilant whether the gap between the two will be further widened after the success of the international listing and financing.