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BELLE valuation attracts initial report to buy rating

The first report is a buy rating with a target price of HK $10, and we think BELLE valuation is attractive because its current price is 38% discount to the one year forward price earnings ratio, and its net cash is equivalent to 13% of market value.

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Driven by solid demand and profit expansion, business segments have improved their overall profitability.

Based on the improvement of the dividend payout rate and the annual compound growth rate of earnings per share in fiscal year 6-7% of about 2016-2017, we believe BELLE can maintain 18% of the net assets yield.

More than 5% of its dividend yield is also better than that of large market capitalization.

BELLE has better supply chain and flexible business cost. We think BELLE has high quality.

The company's share price has fallen by about 10% in the past month, and the weaker third quarter 2015 footwear sales are expected or reflected in the price.

We expect the same store sales in the fourth quarter of 2015 will be improved due to factors such as low base and approaching new year holidays.

BELLE, the leading footwear and sports retailer, is the biggest in China from its revenue perspective.

Retailers.

According to CIIIC, in 2013, it had six seats (including the top five brands) of the ten women's shoe brands.

Its brand is ranked first among men's leather shoes brands.

The company is also the largest footwear dealer in Nike and Adidas in China.

A strong footwear retailer's continued weak atmosphere and department store sales have reduced sales in the same store, and 90% of its stores are located in department stores.

In order to improve the same store sales, the company plans to reduce its opening speed from 10% per year to 3-5% per year. It plans to open more new stores in the first tier city shopping centers and integrate its store network in non tier cities.

We think BELLE is a strong footwear Retailer: 1) because of its better supply chain, few stocks are stored, the first order is low, about 40%, and the lead time is short, about 14 to 21 days.

2) the flexible operating cost structure of the company means that the pressure of deleveraging is low. We expect that although the footwear business segment fell 2% in the first half of 2015 compared with the same period last year, the cost of sales, overhead and administrative expenses increased by only 0.7%.

We believe that the future needs of the sports division are guaranteed (the government encourages commercial sports competitions and increases the number of sports facilities) because of policy support and health awareness.

In addition, the integration of China's sporting goods distributors is conducive to the survival of the fittest in the industry.

The top two distributors (BELLE and Baosheng) are responsible for about 70% sales of Nike and Adidas in China, and their bargaining power is increasing.

For the next three years, the target segment profit margin of the management is about 6 to 8% (14 years is 4.9%), with a long-term target of 10%.

Compared with footwear business, sports business is less dependent on department store sales (about 60% shops are located in department stores, and footwear proportion is 90% above).

The annual compound growth rate of EPS in fiscal year 2016-2017 is expected to be about 6-7%. We expect the same store sales growth rate of 6%, the store growth rate is 5%, and the operating profit margin 0.3-0.4% growth, the annual compound growth rate of the 2016-2017 fiscal year sports segment profit is expected to be about 6-7%.

We expect that in the 4%/3% store growth and -1%/2% same store sales growth led, 2016/2017 financial year footwear business profits increased by 1%-4% year on year.

Valuing our target price of HK $10 is based on 13.8 times expected in fiscal year 2016.

Less than one year forward price earnings ratio double standard deviation.

On the net cash basis, our target price is equivalent to 11.6 times the expected price earnings ratio in fiscal year 2016.

BELLE's diversified business and brand mean that it has lower operating risks compared with its peers.

Based on the improvement of dividend payout ratio (from 30% to 60%) and the annual compound growth rate of earnings per share in fiscal year 2016-2017 to about 6-7%, we expect BELLE to maintain 18% of net asset yield.

AOKANG International (603001) boots landing investment is coming.

The total purchase amount of the company's employee stock ownership plan is 2.5 billion, the average purchase price is close to 15.3 yuan, and the total share capital is 4.15%.

The company will meet the opportunity of 15 years' PE and EPS double rise: the employee stock ownership plan is: employee contribution 130 million, plus the priority fund 130 million, total 260 million, this kind of 1:1 EPS plus benchmark financing behavior shows that the company has confidence in the future market; basically speaking, 15 years' stable demand of industry and the quarterly improvement of company performance will directly promote the company's 15 year EPS growth rate.

Industry demand side: we expect to gradually get out of the bottom in 15 years.

Its 1, the industry inflection point appears in 15 years: the 13-14 year men's footwear industry overall downturn, anticipation 15 years, the demand for men's shoes will have a weak recovery.

Its 2, the industry competition pattern is improving: the middle end brand is developing the market continuously, while AOKANG is the leading enterprise, and the market share is nearly 15%.

Therefore, market concentration has been concentrating on leading enterprises.

3, the supply chain will help the industry to expand the market share: the upstream small shoemaking factory withdraws from the supply chain, which will lead to the concentration of downstream brands.

The turning point of the company's performance and performance has been reflected since the 14Q4 season: the operation of V shaped inflection point is reflected in the 14Q2 season: because the proportion of direct investment in the 14Q2 quarter is 60%, the contribution of direct investment will gradually be reflected; the turning point of performance will be reflected in the 14Q4 season.

Q3 quarterly profit fell 38.9%, has reached the lowest point in history.

Based on the low base number of 13Q4, the 14Q4 EPS growth rate is expected to be very high.

The core factors that affect the performance include 2 points: 1, go to the stock market to lower the gross profit margin; 2, reduce the value.

The inventory of 13Q2-Q3 is very strong, and the Q4 season is expected to ease.

It is expected that in the 15 quarter of the Q1-2 season, we will go to the end of stock and low double-digit growth. From the Q3-4 season, we are going to light up and grow rapidly.

It is expected that the 15 year growth rate will exceed 40%, and the 15 year valuation will be 21 times.

The U recovery will come.

We judged that 15 years of men's clothing went to the end of inventory, and the company's fundamentals went into the U shape reversal.

The company's cash accounts for more than 10 billion, are seeking higher yield investment, for example, the initial stock of CAITONG securities, the company is thinking about the needs of customers to diversify operations.

EPS is estimated to be 0.74 yuan and 0.83 yuan in 14 years and 15 years respectively.

Industry trend upward, 15 years PE about 17 times, high margin of safety, maintain "buy" rating.