Monday, November 16, 2015 China Merchants Securities (HK) Co., Ltd. Company Report Hong Kong Equity Research 361 Degrees (1361 HK) Eugene MAK Lewis WONG 852-3189 6343 852-3189 6160 Attractive risk/return driven by strong sportswear sector
[email protected] [email protected] ■ 361 Degrees (361) has been relatively overlooked despite the current sportswear sector upcycle due to company specific risks. WHAT’S NEW ■ We view the realization of the risks to be unlikely and hence 361 Assume coverage to be undervalued, making it a potential laggard play ■ Attractive risk/reward given 9x FY16E P/E vs 13x sector average BUY and earnings growth outlook. Assume coverage with BUY rating Previous N/A Riding the sportswear upcycle wave Price HK$2.99 We expect a FY15E/16E/17E earnings growth of 20%/11%/14% YoY with 12-month Target Price HK$3.61 (+21%) upcoming share price catalysts from i) FY15 annual results and ii) double (Potential upside) digit sales fair value YoY growth figures to be maintained for its upcoming 3Q/4Q16 sales fairs. Earnings growth will be driven by FY5E/16E/17E Previous N/A revenue growth of 11%/14%/13% YoY as China’s sportswear sector Price Performance continues to turnaround from increased consumer demand (from (%) increased demand in sports performance products as health awareness 60 1361 HSI Index grows and participation in sports by the Chinese increases). As one of the leading Chinese sportswear brands, we expect 361 to continue to 40 benefit from this sector upcycle which can be seen through successive 20 improvements in 361’s SSSG (1Q14’s 2% to 3Q15’s 8%) and sales fair figures while channel inventory remains healthy at 4x inventory-to- 0 monthly sales.