The IPO Process Is In The Sprint Stage. It'S Not Worth 52 Billion 700 Million.

After 3 months of waiting, China's biggest sports shoe retailer, IPO, finally began to offer shares, which means that the IPO process has entered the sprint stage.

According to Zhitong finance and economics APP, the IPO will issue 930 million shares, placing a price of HK $8.5 per share, close to the lower limit of the guideline interval, raising HK $7 billion 905 million, and reducing the 1 billion target of market rumors.

In terms of performance, the revenue of the 2017-2019 fiscal year and the adjusted net profit recorded a compound annual growth rate of more than 20%. But in the 2019 fiscal year, 1374 shops were closed, and 3.76 were closed each day.

In the contradiction between the bright performance and the closing down of stores, the valuation of the target of financing is still up to HK $52 billion 700 million. So, as a leader in China's sports shoes and clothing retailers, can long Bo sustain this about 50000000000 market value?

　 20 years of family history

In fact, the development history of Tao Bo can be traced back to 1999. At that time, he signed a retail agreement with Nike, the first brand partner, and started an early sports shoe clothing retail business in China.

By 2004, with the purchase amount calculated, Tao Po became the largest retail partner of Nike in China, and the company launched business cooperation with Adidas in the same year. 8 years later, Tao Bo has also become Adidas's largest retail partner in the world.

After forming a stable cooperative relationship with Nike and Adidas, Tao began to diversify the brand cooperation, successively cooperating with Puma, CONVERSE, fan, The North Face, Tim Pak LAN, Arthur, ghosts, tigers, Reebok, Skech and other brands to sell products of these brands through their own sales channels. However, Nike and Adidas contributed much to their revenues, and accounted for 87.4% of the 2019 fiscal year (ended February 28th). The effect of multi brand strategy is not obvious.

After 20 years of development and accumulation, the sales channels of Tao Bo have been distributed in 268 cities in 30 provinces of China. According to Zhitong finance and economics APP, as of September 17, 2019, there were 8372 Direct stores and 1957 stores operated by downstream retailers.

　　 15.9% of industry leaders

Because of the trend of the continuous penetration of foreign sports shoes and clothing brands to China, Tao spent 20 years to build such a huge sales network from scratch. Today, according to the total retail sales (including VAT), China has become the second largest sports shoe clothing retail market in the world next to the United States.

Even so, China is still one of the fastest growing markets in the world of sports shoes and clothing retail market. According to frost Sullivan data, from 2018 to 2023, the total retail sales of China's sports shoes and clothing retail market will increase to 392 billion 300 million yuan by 10.7% CAGR. In the same period, the annual per capita consumption expenditure will increase from 12.2% yuan to 274.1 yuan by a compound annual growth rate of 168.7. It can be seen that Tao Bo will still benefit from the growth of China's sports footwear retail market.

From the perspective of industry competition, in 2018, the retail sales volume (including VAT) of 37 billion 500 million yuan (including VAT) was NO.1 of China's sports shoes and clothing retail market, with a market share of 15.9%, which was 4.3 percentage points higher than that of second Baosheng International (03813) cities. From the industry concentration point of view, the market share of the top five players is 31.1%, and the industry concentration still has room for improvement.

In fact, from a broad perspective, domestic sports shoes and clothing brands such as Anta (02020), Lining (02331) and 361 (01361) are also competitors. But at present Nike, Adidas and other brands still have strong dominance in the domestic high-end line, and there are some differences between them.

Therefore, it has formed good cooperation with Nike and Adidas, and has become the two largest retailer in the world. But we should pay attention to the pursuit of Baosheng international. After all, the market share of the two cities is only less than 5%.

　　 The logic of promoting performance development changed in fiscal 2019.

As a direct business oriented offline retailer, factors affecting performance include net store growth, average sales per store, and operation cost control.

Zhitong finance and economics APP found that the number of stores closed since the 2019 fiscal year has increased dramatically, resulting in a serious decline in net sales of stores.

In the 2019 fiscal year, 1415 new shops were opened, 1374 closed, equivalent to closing 3.76 stores a day, resulting in a net increase of only 41 stores. During the three months ending May 31, 2019 (the first quarter of fiscal year 2020), the store closed down 268 stores and only 139 new stores, resulting in a decrease of 129 stores. All direct stores also fell to 8214 from 8589 in the same period last year.

Such a close shutdown of retail stores is not a good omen, but APP of Zhitong finance and economics found that the average sales volume of single store increased gradually, from 3 million yuan in fiscal 2017 to 3 million 800 thousand yuan in fiscal 2019. And in the first quarter of fiscal year 2020, it was 1 million yuan, equivalent to 4 million yuan a year, indicating that the sales of single stores in Direct stores increased year by year in the three months.

The net increase in the number of stores indicates that the expansion is weak, but the sales of single stores are still growing. Why is there such a contradiction? The reason is that, by reducing the smaller stores, expanding the proportion of larger stores and implementing multi brand strategy in larger stores, the company can promote the retail sales of single stores.

In fiscal year 2019, the number of stores under 150 square meters and below accounted for 71.3%, down 4.2 percentage points compared with the same period last year, but the proportion of 150 square meters to 300 square meters and more than 300 square meters of stores increased, and the value of promotion was significantly greater than that in 2018 fiscal year. At the same time, as of May 31, 2019, the trend continued.

This shows that since the 2019 fiscal year, there has been a marked difference between the driving force for growth and growth in the 2017 and 2018 fiscal years. In the 2017 and 2018 fiscal year, the growth of performance mainly depended on the expansion of stores, and the number of new stores was 621 and 697 respectively. However, since the beginning of fiscal year 2019, the driving logic of its performance is not to add new stores, but to shut down small shops with poor performance.

Why did the logic of driving growth performance change in the 2019 fiscal year? The reason is very simple, because the two main brands of Nike and Adidas are positioned high end, but the domestic economic downturn in 2018 led to the sales of the two major brands. In order to reverse the trend of decline, it has carried out multi brand strategy in larger stores. Other brands are relatively low-end, driven by rigid demand, making demand rise, thereby hedging the decline of the growth rate of the main brand.

APP found that in the 2019 fiscal year and the first quarter of fiscal year 2020, the proportion of main brand income decreased significantly compared with the previous year, while the proportion of other brands' income increased significantly. In the 2019 fiscal year, other brands accounted for 12.6% of the revenue and 2 percentage points. In the first quarter of 2020, the other brands accounted for 11.2% of the revenue and 1.7 percentage points.

In terms of operational cost control, although the development of Tao Bo has been affected by a certain macro-economy, the operation cost has been reasonably controlled. In the 2017 fiscal year, the adjusted net profit margin of taipo was 7.09%. In the 2018 fiscal year, because of the decline in gross margin and the increase in new stores, the general administrative expenses increased, resulting in the adjusted net profit margin falling to 6.8%. However, in the 2019 fiscal year, under the condition of stable gross margin, the reduction of stores saved general administrative expenses, resulting in the adjusted net profit margin rising to 6.9%.

Therefore, in the macroeconomic downturn, Tao Bo achieved stable growth in performance through the counter cyclical regulation of business development and reasonable control of operating costs. In fiscal year 2017-2019, revenue and adjusted net profit recorded an annual compound growth rate of more than 20%.

From the inventory turnover index, the counter cyclical adjustment strategy has no effect on inventory turnover. In fiscal year 2017-2019, inventory turnover lasted for 103 days, and the first quarter of 2020 rose to 115.2 days. By July 30, 2019, inventories in the first quarter of 2020 had been 45.3%.

　 The logic of valuation

On the whole, under the influence of the macroeconomic downturn, the company has adopted a counter cyclical adjustment strategy, closed down inefficient stores, and adopted a multi brand sales mode in larger stores to hedge against the decline in the growth of the main brand performance, thereby achieving sustained growth in revenues and profits.

However, while maintaining steady growth in its performance, it has also increased its liabilities. In the 2019 fiscal year, the asset liability ratio of Tao Bo was 87.98%, up nearly 14 percentage points from the same period last year, although it fell to 84.2% in the first quarter of fiscal 2020, but it is still at a relatively high level of debt.

In the face of steady growth but high debt, how should we give it a valuation? According to APP of Zhitong finance and economics, Tao Bo will sell 930 million shares, offering HK $8.5 and raising HK $7 billion 905 million. After the listing, BELLE international will hold a 85% stake in Tao Bo and the remaining 15% will be public shareholding.

As a result, the market value of HK $8.5 per share is HK $52 billion 700 million, corresponding to the PE in fiscal year 2019, which is 21.32 times that of the 2019 fiscal year. If PE continues to maintain a net profit growth rate of 20% in the next two years, it will be 17.77 times and 14.81 times that of the 2020 fiscal year and the 2021 fiscal year.

Compared with Baosheng international competitor, PE has a median value of 15 times in the past three years, with a maximum value of 28 times. Therefore, the listing of HK $8.5 per share is not undervalued, but in a reasonable range. In view of the leading position and the certainty in the short term, we believe that the market will give a certain premium. But in the medium term, the penetration effect of multi brand strategy in existing stores will gradually decrease, and the expansion of new stores will depend on the expansion of new stores.

What is worth mentioning is that, compared with Anta and Lining, such as Anta and Anta, because the logic of driving profit growth is different, Anta and Anta achieve high net profit through brand, but they are expanding through high debt and high turnover.

But due to the good cooperation between Nike and Adidas, the market for Chinese high-end sports shoes and footwear is still competitive before it is replaced by domestic market and the market is still incremental competition.