Roadshow Record | ZIBUYU (02420): Strengthening Global Flexible Supply Chain to Build Competitive Barriers, Gradually Demonstrating the Effect of Precise Operation and Brand Expansion Overseas.

From December 11th to 13th, the 9th GMTEight Capital Market Annual Conference was successfully held in Shenzhen and Hong Kong. During the concentrated roadshow session "GMTEight Spring Strategy Meeting", investors and research institutions on-site discussed ZIBUYU (02420) company's business, finance, and future development with the management. The following is a summary of the roadshow: ZIBUYU has become one of China's largest domestic cross-border e-commerce companies for clothing brands. Established in 2011, ZIBUYU opened its first online store on Amazon in 2014, officially entering the cross-border e-commerce field. By 2018, the company's annual sales had exceeded 1 billion RMB, and in just two years, it doubled its annual sales in 2020. On November 11, 2022, ZIBUYU successfully listed on the main board of the Hong Kong Stock Exchange, marking a new development stage for the company. As of now, the company sells various self-designed clothing, shoes, and other products globally through third-party cross-border e-commerce platforms and self-operated platforms. In the cross-border e-commerce apparel and footwear track, ZIBUYU is already one of China's largest domestic clothing brand cross-border e-commerce companies, with a global supply chain system that integrates product development, design, production, and sales. In terms of product design, the company has an experienced team of designers who integrate new elements into all categories designs by identifying trends through big data analysis, cultivating popular items in a short period, and efficiently introducing new products in conjunction with the supply chain. In terms of production, ZIBUYU's strong global supply chain system can quickly respond to customer demands. Its self-developed "ZIBUYU digital platform" integrates the entire cross-border process from product planning to new product development, procurement delivery, warehousing logistics, and FBA storage. It can clearly monitor the operational efficiency of each node to ensure efficient product delivery. In terms of sales, ZIBUYU's global, omnichannel, multi-platform business model accelerates the company's development. Its sales regions extend to North America, Europe, Asia, South America, Africa, and Oceania, with North America being the company's main battlefield. In terms of sales channels, in addition to self-operated independent websites, ZIBUYU also covers third-party channels, including mainstream platforms such as Amazon, Temu, Tiktok, and SHEIN. Net profit attributable to parent companies surged nearly 8 times in the first half of 2024 In terms of performance, due to the increasing proportion of revenue from North America and third-party platforms, ZIBUYU's revenue scale has achieved high-speed growth in the past five years, with revenue increasing from 14.3 billion RMB in 2019 to 30.0 billion RMB in 2023, with a four-year CAGR of 20.4%. Gross profit has also been rapidly increasing, with a four-year CAGR of 18.3%, and gross profit margin maintained at a high level. In 2023, net profit attributable to parent companies recorded a loss, mainly due to a one-time impact of inventory impairment provisions. However, in the first half of 2024, ZIBUYU's performance turned around, with continuous revenue growth and significantly improved profitability. During the reporting period, ZIBUYU's revenue and gross profit increased by 6.3% and 8.0% year-on-year, respectively, while net profit attributable to parent companies skyrocketed nearly 8 times year-on-year. As ZIBUYU's light asset, endogenous, sustainable business continues to develop, the company's debt situation has continued to improve, with total cash reaching a record high of 370 million RMB in the first half of 2024. The reason why ZIBUYU achieved a significant turnaround in performance in 2024 was due to a series of reforms involving product design, supply chain, brand incubation, and changes in management that the company has been implementing since the second half of 2023. Furthermore, since the beginning of 2024, the company has further deepened these reforms, laying a solid foundation for the company's development over the next decade. Specifically, in terms of product design, ZIBUYU gradually changed from a broad-based release model to a more refined one. To accelerate this transformation, the company restructured its organizational framework by specializing the design and operations teams, with the operations team no longer responsible for product releases. Meanwhile, the design team releases SPU products according to brand tonality, reducing the number of annual SPU releases from 10,000 to 3,000 this year. Sales have increased year-on-year, indicating the effectiveness of the company's refined product launches. In terms of the supply chain, ZIBUYU promotes the direct supply model with suppliers. Based on deep cooperation with core suppliers and an excellent and stable quality control system, the company has achieved a rapid transition from production to shipping, reducing intermediate links, improving overall efficiency, ensuring delivery accuracy, and reducing dependence on domestic warehouses. In terms of brand incubation, ZIBUYU has transitioned from "product going global" to "brand going global." After years of accumulation and incubation, ZIBUYU has built three brands with annual sales exceeding millions of RMB: women's shoe brand Coutgo, professional women's clothing brand Cicy Bell, and sports women's clothing brand Fisoew. Based on the rich experience in incubating brand products, ZIBUYU began brand building early this year and established a brand department, focusing on creating multiple core brands, and planning and managing the full range of core brands. Regarding management changes, on August 29, 2024, ZIBUYU Chairman Mr. Hua Bingru resigned as CEO, and Mr. Chen Caixiong, co-CEO, took over as executive director and CEO of the company, marking the first core executive change since the company went public. Mr. Chen Caixiong has extensive experience in supply chain management and will help the company further optimize and build an agile and flexible supply chain system, continuously strengthening the company's global competitive barriers. Additionally, the company has begun to enhance its product strength, emphasizing quality first to increase international competitiveness. It can be said that 2024 will be a transformative year in the company's development history, and a series of top-down reforms have laid a solid foundation for the company's development in the next decade. Based on the current layout, ZIBUYU will accelerate the construction of internationally renowned fashion brands over the next three years, hastening the company's transition from product going global to brand going global. Over the next decade, ZIBUYU hopes to become a central figure on the world stage.El texto ya est en ingls.Regarding the development goals mentioned above, the ZIBUYU management team has firm confidence. As early as the end of 2023, ZIBUYU released two ten-year equity incentive plans, one involving repurchasing existing shares (up to 10%) and the other involving issuing new shares (up to 5%) to incentivize contributing employees. This not only helps retain talent but also rejuvenates employees to drive the company towards continuous development. The company's strong net cash level provides a solid foundation for future equity incentive repurchases. Q&A Section: Q: The company had as many as 10,000 original SPU, but has significantly reduced to 3,000 this year while still maintaining revenue growth. This is the result of the company's refined product launch strategy. Could you please provide more details on this specific process? A: ZIBUYU started on Amazon, a platform that focuses on single products. The company's previous model involved launching many new products every year using a fast turnover strategy. After placing new products on the shelves, the company would monitor the repeat order rate. For products considered popular, they would increase advertising spending. This fast turnover strategy served as a filtering mechanism. ZIBUYU used to launch 10,000 SPU every year, handled by the design and operations teams. This approach was not only costly but also led to wastage in advertising spending and inventory backlog issues. In response, ZIBUYU began making changes based on its accumulated industry knowledge. Firstly, it streamlined profitable brands and eliminated unprofitable ones. Secondly, it restructured and optimized its personnel, establishing separate business units for each brand to handle marketing and product launches. This professionalization of the process increased efficiency. ZIBUYU also hired international talents to refine brand VI, strategic approaches, and explore untapped overseas community marketing, focusing the customer base. This strategy helps gather more precise consumer feedback. Detailed data feedback is the foundation of ZIBUYU's refined product launches. Q: Are all of the company's current stores online? Are there plans to develop offline stores? A: ZIBUYU currently operates online stores only, with over 500 stores across all platforms. Regarding future plans, the company is considering establishing overseas offline stores in the coming years, but online operations remain a priority for now. Q: The company has a plethora of brands. Why choose to incubate new brands instead of acquiring mature ones? Are there acquisition plans in the future? A: The company had a larger number of brands during its 2022 listing. In the past two years, the company has been optimizing its brand portfolio, closing unprofitable stores and reclaiming brands. The current strategy shifts from "product overseas" to "brand overseas," consolidating over 200 brands into 10 major brands for brand-focused operations, marking a strategic shift and turning point for the company. Regarding acquisitions, in 2021, the company commissioned Frost & Sullivan to conduct market size research. ZIBUYU ranked first in GMV in North America and third globally in the cross-border clothing track. Therefore, the company's advantage lies in incubating its own brands. If ZIBUYU were to acquire, it would target upstream and downstream enterprises. Last year, the company disclosed a $5 million investment in a jewelry company. Q: The company currently uses a direct supply model from suppliers, reducing the number of domestic warehouses from six to two. How does the company ensure quality control under this model? A: The women's clothing industry has a high return rate, typically 25-30%. On platforms like Taobao, returned products can be repackaged and resold. However, on Amazon, returned items go back to the FBA warehouse, owned by Amazon, without repackaging, depreciating the value. Hence, secondary sales success rate is low, underscoring the importance of quality control. Previously, ZIBUYU's shipping process involved OEM suppliers delivering goods to the company's domestic warehouse before dispatching to FBA warehouses in the US. The company now enables suppliers to ship directly due to long-term deep cooperation and clear understanding of their quality control. ZIBUYU categorizes suppliers by different levels to correspond with different products. During OEM shipments, ZIBUYU's quality control department conducts random sampling checks. Q: International expansion has become a new trend, with Southeast Asia and the Middle East emerging as markets. Does the company have a presence in these markets? A: The company sees opportunities in Southeast Asia and the Middle East. ZIBUYU plans to establish some OEM suppliers in places like Vietnam and directly ship from overseas to integrate global operations. While these markets show potential, the company remains focused on North America, as Amazon's volume in North America surpasses other regions. Q: The company's fundamentals have improved significantly, but trading volume might not be high due to liquidity issues. Does the company have corresponding measures to address this? A: Liquidity is a challenge in the Hong Kong stock market for companies not listed on the Stock Connect. This is not unique to ZIBUYU. However, the company's ten-year equity incentive plan announced last year allows repurchasing up to 10% of shares, totaling 50 million shares, which could amount to around 200 million at current prices, providing sustained buying pressure in the market. As the company's fundamentals improve, it will attract capital to enhance liquidity. ZIBUYU will continue communicating closely with the capital market.Enable investors to have a clearer understanding of the company's operational situation.Traduce al ingls: