Cathay Pacific Junan: Target price of HK$20.9 for the first “gain” rating for Jiangnan Cloth (03306)

The Zhitong Finance App learned that Guotai Junan released a research report saying that for the first time, it covered Jiangnan Buyi (03306) and gave it an “increase in wealth” rating. The company is a leading domestic designer brand. The net profit of FY2025-2027 is estimated to be RMB869/9.04/987, respectively, with a target price of HK$20.9 million. The company is committed to building a designer brand fashion group. FY2024's performance is beautiful and high; continuing to improve the brand matrix, performance is expected to grow steadily. At the same time, high dividends give back to shareholders, and undervaluation and high dividend attributes are prominent.

Guotai Junan's views are as follows:

The company is a leading domestic designer brand. It has been deeply involved in the industry for 30 years, and has a strong brand heritage and strength.

The company was founded in 1994. In recent years, it has established well-known designer brands such as JNBY, Sketch, and LESS, covering segments such as women's clothing, men's clothing, children's wear, and loungewear. FY2014-2024 revenue rapidly increased from 1.38 billion yuan to 5.24 billion yuan, a CAGR of 14.3%, and a net profit CAGR of 19.0%. Considering the rapid growth rate of the designer brand industry in which the company is located (2018-2023 industry CAGR is 7.6%, superior to the 6% growth rate of the women's clothing industry and higher than fast fashion, luxury goods, etc.), the company has strong strength and stable position as a leader in the industry, and will continue to tap the industry's potential and steadily expand its revenue scale in the future.

Driven by both design power and brand power, the channel is steadily expanding. The company adheres to the “dual power drive” development strategy of design power and brand power, and continues to consolidate its core competitiveness.

1) Design power: The company focuses on R&D investment. FY2024 design and R&D investment increased 16% to 196 million yuan year-on-year, accounting for 4% of revenue, and continuous iterative innovation in fabric and process design;

2) Brand strength: Continuously improve the brand matrix, use art as the label, and continuously enhance brand awareness and reputation. FY2019-2024 mature brands/growing brands/emerging brands all had a revenue CAGR of over 9%;

3) Channel power: Promoting a global retail model centered on the fan economy, achieving rapid growth both online and offline. Through efficient operation, FY2024 same-store revenue growth is nearly 11%. Future prospects: On the one hand, the company will actively promote “design+brand-driven”, “global retail” and “multi-brand operation” operation strategies to continue to consolidate competitiveness. FY2026 is expected to achieve the 10 billion retail target; on the other hand, the company's cash flow is expected to continue to be high, and the dividend rate for FY2024 is expected to reach 97% in the future.

Risk warning: Terminal consumption intentions fall short of expectations, store expansion falls short of expectations, and store efficiency improvements fall short of expectations.