Fujian SeptWolves Industry:We expect a modest rebound in revenue growth发布时间：2016-06-01 研究机构：瑞银证券
Offline business still under pressure.
We believe the company's operational quality has stabilized and per-store earningshave improved after nearly two years of product/channel adjustments. However, givenweak overall consumption, we estimate the company's offline revenue is unlikely toshow positive growth in 2016, but could fall at a slower pace of 2.5% before returningto modest positive growth in 2017.
Online business to encounter bottleneck.
The company's e-commerce revenue grew 60% in 2015. However, excluding knittedtextile products, with a 38% contribution, e-commerce revenue was flat YoY. Webelieve with the end of traffic-driven growth for e-commerce, overall online apparelsales growth is cooling, and the company's online business, whose main purpose isdestocking, will encounter a bottleneck. We forecast the company's online revenuegrowth to ease to 15% in the next two years, with overall revenue unlikely to resumedouble-digit growth.
EBIT margin likely to steadily improve.
While a higher weighting of lower-margin knitted textile products caused thecompany's gross margin to contract 4.8ppts YoY in Q116, a sharp YoY decrease inprovisions for impairment enabled EBIT margin to expand 1.1ppt YoY. We expect thecompany's EBIT margin to keep improving from 2016 onwards, mainly due to:1) slowing channel contraction and higher per-store earnings after adjustments; and2) an estimated lower ratio of provisions for inventory impairment to revenue (vs.
10.5% in 2015) after destocking.
Valuation: Rmb10.60 price target; maintain Neutral rating.
Our 2016-18E EPS are Rmb0.32/0.38/0.44. Our DCF-based price target of Rmb10.60assumes WACC of 8.8%. We maintain our Neutral rating.