361 degrees catching up with its peers, the new global strategy is starting to show results.

This sporting goods retailer lags behind its peers in valuation and hopes to accelerate growth through children's clothing and online business. Recently released data shows initial results.

Key Point:

*361 Degrees' retail sales in the fourth quarter of last year saw high double-digit growth year-on-year, with children's clothing retail sales recording a 25% to 30% year-on-year growth. The overall turnover of the newly announced e-commerce platform saw a 35% to 40% year-on-year growth.

*The company's PE ratio is only 12.8 times, significantly lagging behind competitors like li ning, anta, and xtep.

The author of this article is Ye Tianna.

In addition to the Winter Olympics in February, this October, China will welcome another major sports event. Athletes from various countries in Asia will gather in Hangzhou to compete for various championships at the 19th Asian Games. The official sportswear sponsor of this Asian Games is once again a Chinese brand.$361 DEGREES (01361.HK)$Obtained, the company has cooperated with the Asian Games for the fourth consecutive edition.

This Tuesday, 361 degrees' business update showed that its main operations achieved strong double-digit sales growth in the fourth quarter, providing necessary support for its stock price.

361 degrees,$LI NING (02331.HK)$、$ANTA SPORTS (02020.HK)$And$XTEP INT'L (01368.HK)$Once known as one of the top four sporting goods brands in China, 361 degrees, which has always focused on third-tier cities, has gradually been left behind by its competitors. Li Ning has maintained its leading position in professional sports and trendsetting, with a market cap exceeding 200 billion Hong Kong dollars (163 billion yuan); Anta has adopted a multi-brand strategy, including the successful acquisition of the Italian brand FILA, with a market cap of 320 billion Hong Kong dollars, making both of them constituents of the Hang Seng Index.

Xie Tingfeng, a celebrity shareholder and endorser of Xtep, has also implemented a multi-brand deployment in recent years, breaking through with a fashion-oriented approach, increasing its market cap to over 36 billion Hong Kong dollars; What about 361 degrees? Its market cap is only slightly above 8 billion Hong Kong dollars.

In the fiercely competitive outfits market, 361 degrees' boss Ding Huichang has not been sitting idly by, constantly seeking breakthroughs in hopes of catching up with three powerful competitors, finally seeing a glimmer of hope—children's clothing and online new retail.

In the early morning of January 18th, 361 degrees released its fourth-quarter operational data from last year. The two-page document includes details like high double-digit growth in retail sales of the independent brand in the fourth quarter year-on-year, a 20% to 30% year-on-year increase in children's clothing brand sales, and a 35% to 40% year-on-year increase in overall retail revenue on the e-commerce platform. From the data perspective, 361 degrees' performance was good. The stock price surged by 6% that day, but only closed up by 1.8%.

Harvest Year for Sports

Last year could be described as a harvest year for Chinese sporting goods brands. The 'Xinjiang Cotton Incident' led a large number of patriotic Chinese consumers to boycott Western chain brands and switch to national brands. Li Ning's stock price started rising in March last year, peaking at a 1.4-fold increase, Xtep's highest surge was 3.4 times, Anta also rose by 54%, while 361 degrees was not weak either, soaring up to 1.6 times at most. Based on last Friday's closing price of 3.94 Hong Kong dollars, there is still an almost double increase.

In terms of valuation, 361 degrees lags far behind. As of January 19th, Li Ning's forecast PE ratio is 42 times, Anta and Xtep are 32 times. What about 361 degrees? It's only 11.8 times.

At first glance, it seems like 361 degrees is severely undervalued, but there is some rationale behind it. Looking at the financial performance of the four companies in the first half of last year, Li Ning, Anta, and 361 degrees' profits increased by 72% to 1.9 times year-on-year, with gross margin improving from 41.8% to 63.2%. Turning to 361 degrees' mid-year performance last year, profits only rose by 32% year-on-year, and even with a 4 percentage point improvement in gross margin, it's only at 41.8%, indicating its performance lags the most.

In recent years, Ding Huihao has been continuously implementing a youth-oriented strategy, successively launching joint products with well-known intellectual property companies such as PepsiCo, Gundam, Captain Xiaoyi, Saint Seiya, and Pokemon. They have also signed sponsorship deals with famous basketball superstars Aaron Gordon and Kyranbek Makhan, gradually establishing a young consumer group.

Policy tailwind

In addition, the company is also developing the children's clothing business. The market believes that Ding Huihao wants to make a big impact in this market. In the first half of last year, the revenue of 361 Degrees' children's clothing increased by 24%, reaching nearly 0.5 billion yuan, with a growth rate higher than other businesses. The revenue share also increased from 14.9% in 2020 to 16%. The company explicitly stated that it will vigorously expand into the children's clothing segment market, launching a series of products for toddlers under 3 years old and a series for teenagers aged 12 to 14.

In the third quarter of last year, the sales of 361 Degrees' children's clothing brand increased by 15% to 20% year-on-year; the growth accelerated to 20% to 30% in the fourth quarter. With China encouraging 'national fitness' and 'three-child' policies, Ding Huihao sees the children's segment market and hopes to ride the policy tailwind.

On the other hand, most of the 361 Degrees stores are in third-tier cities. The company is also fully committed to building online channels, reaching out to young consumers in first and second-tier cities. They sell on major e-commerce platforms nationwide, and their self-developed WeChat Mini Program 'Youyan Youdu' has officially launched, providing fashion information and diverting traffic to online sales platforms. In June last year, the company also signed China's well-known young actor Gong Jun as the global spokesperson. In July alone, Gong Jun's live-streamed sales have reached as high as 35 million yuan.

Guotai Junan is bullish on online channels as the main driver of 361 Degrees' growth. According to the company's first disclosed relevant data, overall retail turnover on e-commerce platforms increased by 35% to 40% year-on-year in the fourth quarter. Even though live-streamed sales may have some impact on offline sales, this new retail model can bring significant additional income to the company. Therefore, the bank has a 'buy' rating with a target price of 4.5 Hong Kong dollars; Guotai Junan International also sees potential in 361 Degrees' youth-oriented strategy and believes that the children's clothing market has great potential. With all the company's USD debts already redeemed, under optimized capital structure, they also give a 'buy' rating with a target price of 5.9 Hong Kong dollars, representing a potential increase of about 45% from the current stock price level.

The Olympic spirit advocates 'higher, faster, stronger.' Ding Huihao, with the help of technology and a youth-oriented strategy, can eventually lead 361 Degrees to achieve higher growth speeds and quickly catch up with competitors, making the company stronger. The market is watching closely.

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