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Introduction: Bosideng’s founder cashed out HK$1.7 billion and took advantage of the good performance to quickly “settle down”?

Text/Daily Financial Report Lv Mingxia

On July 2, Bosideng announced that Yingxin International Investment Co., Ltd., which is indirectly wholly owned by a trust established by the group's founder, chairman of the board and controlling shareholder Gao Dekang, has signed a block transaction agreement with the placement agent, intending to place 400 million shares held by it to the buyer at a price of HK$4.31 per share. The transaction was completed on July 5.

This means that Gao Dekang's subsidiary will cash out more than HK$1.7 billion. In recent years, the phenomenon of executives of listed companies reducing their holdings has occurred frequently, especially in the consumer sector. There are certain differences in the market about the purpose of Bosideng's placement and reduction of holdings.

Bosideng claimed that the founder's reduction of holdings in the company's shares was for the purpose of "optimizing the company's equity structure and releasing market liquidity for the company's shares", but the capital market obviously did not recognize it. On the second day after the announcement, July 3, the stock price plummeted by as much as 15.9%.

How has Bosideng's business been developing over the years? Is the sharp drop just an overreaction of the market?

Take advantage of the good performance and quickly "land and settle down"?

After the placement, Yingxin International's shareholding in Bosideng will be reduced from 15.6% to 11.96%, but Gao Dekang will still be the controlling shareholder of Bosideng. From the perspective of equity structure, before the placement, Gao Dekang and Mei Dong held a total of 67.57% of Bosideng's shares, which dropped to 63.93% after the placement. In other words, the above placement is actually equivalent to a reduction in shareholding.

It has to be said that the timing of Bosideng Group founder Gao Dekang's shareholding reduction is very intriguing.

On June 26, 2024, Bosideng disclosed its financial report for the 2023/24 fiscal year (ending March 31, 2024), with revenue of 23.21 billion yuan, a year-on-year increase of 38.4%; net profit of 3.12 billion yuan, a year-on-year increase of 44.7%.

Judging from the performance, Bosideng has delivered the best report card in recent years. Specifically, its main businesses represented by down jacket business, OEM processing management business, and women's clothing business have achieved rapid growth in revenue.

Thanks to this, the capital market has also begun to pay attention to Bosideng again. Many investment banks have raised their buy ratings. The stock price closed at HK$4.33 on the day the financial report was released, while CICC raised its target price to HK$5.63 and JPMorgan Chase raised its target price to HK$6.6.

However, who could have expected that the booming stock price would be ruthlessly broken by Gao Dekang's cashing out. The announcement of Bosideng's placement quickly caused the company's stock price to collapse.

It is worth noting that this is not the first time that Bosideng has carried out a large-scale reduction. On September 1, 2022, Yingxin International signed a block transaction agreement with the placing agent to sell 230 million Bosideng shares at a price of HK$3.94 per share, accounting for 2.12% of the total number of Bosideng shares issued at that time.

It is worth noting that in addition to the founder Gao Dekang, Bosideng executives have also reduced their holdings. From April to May this year, Bosideng Senior Vice President Rui Jinsong reduced his holdings of the company by 4.482 million and 1.518 million shares respectively, with a total cash out amount of about HK$27 million.

The relatively frequent share reduction actions of senior executives make it difficult for the market not to speculate.

Trapped in a down jacket trying to cross the "season"

Dissecting the financial report, Bosideng's glory is mainly due to its down jackets. Bosideng was founded in 1976. At first, it was just a business of processing supplied materials and OEM processing. In 1992, the "Bosideng" brand came into being. Bosideng's sales volume ranked first in the country in 1995. In the winter of 1999, its sales volume exceeded 3 million pieces, and its market share reached 40%. In 2007, Bosideng successfully landed on the Hong Kong Stock Exchange, becoming the first stock in China's down jacket industry.

The financial report shows that in fiscal year 2024, Bosideng's brand down jacket business revenue was 19.521 billion yuan, accounting for 84.1% of the total revenue; the OEM processing management business revenue was 2.670 billion yuan, accounting for 11.5%; the women's clothing business revenue was 820 million yuan, accounting for 3.5%; the diversified clothing business mainly based on Samet brand school uniforms had revenue of 203 million yuan, accounting for 0.9%.

Although the company's performance has been stable and improving, its excessive focus on its core down jacket business has also determined that Bosideng's risk resistance is weak and its performance fluctuates violently.

In order to open up the imagination space, Bosideng once again embarked on the road of diversification. For example, in the summer of 2023, Bosideng launched a new sun protection clothing product "Jiaoyang 3.0". In addition, in the Tmall flagship store, Bosideng also put on the shelves regular clothing products such as jackets, children's clothing, and hoodies.

However, the development of Bosideng's diversified business still faces many challenges. For example, the sun protection clothing market is already a red ocean. New consumer brands such as Jiaoxia, Jiaoinai, and Moxun, as well as sportswear brands such as Decathlon and Anta, are constantly entering the sun protection clothing market, and the market competition is very fierce.

As for outdoor sportswear such as jackets, Bosideng not only has to face traditional sportswear competitors, but also has to compete with professional outdoor sports brands and high-end fashion brands.

In other words, Bosideng's businesses other than down jackets are very limited in terms of growth and revenue share.

Performance boosted by Guochao and high-end development

In fact, Bosideng's performance has continued to pick up in recent years, mainly due to its seizing the dividends of the national trend and refocusing on down jackets, and on the other hand due to its price increase strategy and marketing layout.

During the period of 2018-2019, "national tide" began to form a real trend under the promotion of multiple conditions such as policy dividends, platform dividends, and consumption dividends.

It was also during the New York Fashion Week in October 2018 that Bosideng's show models took "windows" as the theme of the series, integrating Chinese charm into the design, using Chinese elements and forms such as window panes and ancient ink paintings to achieve the integration of Chinese cultural elements and modern technology. Bosideng seized this trend at this time, in line with the changes in consumer trends, and it was natural for it to achieve a turnaround.

Since the official announcement of high-end development in 2018, Bosideng's prices have "no ceiling". In 2021, Bosideng launched the "Peak 2.0" series with a price of up to 14,900 yuan, embarking on the "luxury" down jacket track, which made consumers say "I can't afford it".

Dongfeng Securities Research Report pointed out that from 2018 to 2021, the average price of Bosideng down jacket tags increased by 63%-80% in four years. In other words, the price increase strategy contributed 60% to 80% of the nearly doubled performance.

It should be noted that price is also a double-edged sword, and we need to be wary of marginal effects, especially when the industry changes or consumer preferences change.

Along with the price increase, marketing expenses also rose. The financial report shows that advertising and marketing expenses in fiscal year 2024 will rise from 3.44 billion yuan in fiscal year 2019 to 8.055 billion yuan in fiscal year 2024; the sales expense ratio basically remains above 35%.

In terms of endorsements, Bosideng’s brand spokespersons include not only popular film and television stars such as Yi Yang Qianxi and Yang Zi, but also skiing genius Gu Ailing, mountaineer Xia Boyu and many others.

At present, Bosideng ranks among the top brands of mid- to high-end down jackets in China. However, it is worth thinking about whether high price means high-end. How can Bosideng down jackets, which are getting more expensive, attract consumers in the future?

High prices require high quality. If a company only uses the label of "high-end" to try to quickly gain profits through high prices, while ignoring the continuous improvement of product quality, it will not last long. After all, the market is increasingly involuted and there is no shortage of choices. Only by being consistent in appearance and telling a thorough story of quality-price ratio and cost-effectiveness can it truly stick to the market and make consumers willing to pay and continue to pay.