Belle International: A Rational, Conservative Investment Choice In China

| About: Belle International (BELLY)

Summary

Belle International is an obvious pick for China: Valuation is low, past financial performance has been excellent, and considerable growth is ahead for the company.

The company is China's leading women's shoe retailer, and its expansion into sportswear and apparel has been extremely successful, with a 17% increase in turnover.

The company's financials are superior to its industry and sector.

With stocks in China soaring to irrational highs and being criticized as being in a bubble, there is an increased appropriateness for value based investing when investing in China. As of late April this year, the Shanghai Stock Exchange increased 123% over the past year, while Shenzhen's Stock Exchange increased 120% over the past year. Searching through China's ADRs, it is clear to see that there are still undervalued companies, and those bullish or bearish on China can very easily find true value. I previous mentioned Fosun International as a conglomerate with low valuation, and would also see the necessity to mention Belle International, which is an undervalued, superior alternative in both China and its respective industry.

Belle International (OTCPK:BELLY) is China's leading women's shoe retailer, with retail operations in China, Hong Kong, Macau, and the United States. The company manufactures, distributes, and retails footwear and other apparel, with primary operations in China, Hong Kong, and Macau. As of late February this year, the company managed 20,557 outlets in China, and 158 outlets in Hong Kong and Macau. In addition to these operations, the company also operates in e-commerce and property holdings business.

Its presence in China is very dominant, as it enjoys approximately 22% of the market share in this industry. Its relative strengths include consistent financial performance, low valuation, and diverse global operations. Moreover, a closer look at future trends for exports, retail sales, and consumer spending in China provides a favorable outlook. Belle International is already a superior pick for its industry, and has ample growth ahead; its key position in this industry in China will attribute to its future success.

China's Retail Sales and Exports

2010

2011

2012

2013

2014

Retail Sales Annual Growth

18.4%

17.1%

14.3%

13.1%

12%

Exports Annual Growth

31.3%

20.2%

8%

7.8%

6.1%

Source: Focus Economics.

Growth in retail sales in China has been considerable since 2010, with an average growth rate of approximately 15%. Although the annual growth rate has been significantly declining since 2010, growth has still been consistent. Growth is still ahead in 2016, although the annual growth rate will be slightly lower; the growth in retail sales is expected to decline to 9% YOY. Belle International can still leverage off of its strength in the domestic market, as 9% growth is still attractive. Consumer Spending is expected to increase from 241,541 CNY HML to 253,924 CNY HML in 2016, representing a modest 5.1% increase.

Balance of Trade

The main concern for this industry is the projected decline of China's balance of trade to $421.36 million in 2016, representing a 9.5% decrease from July 2015. Despite decline in exports, Belle International's main strength is in its domestic operations in China; as seen later, the company has been able to financially thrive amidst the decline in growth.

Superiority in its Industry/Sector

With the macroeconomic environment looking considerably favorable, it is further significant to mention that Belle International is superior in every aspect, in comparison to other companies in its industry and sector.

  • The company has a lower P/B, P/S, P/E, and Beta when compared to both its industry and sector.
  • The company has a higher ROE, ROI, ROA, and dividend yield when compared to both its industry and sector.

Belle International

Industry

Sector

P/E

11.75

99

19.41

ROE

18.64

11.6

16.69

ROI

18.42

10.57

13.10

ROA

14.63

7.58

8.03

Beta

0.95

1.52

1.18

Price/Sales

1.40

2.48

3,673.94

Price/Book

2.24

5.51

2.64

Dividend Yield

5.14

0.63

2.60

Source: Reuters.

Past Financial Performance

Millions of Chinese RMB Dec. 2012 Dec. 2013 Feb. 2014 Feb. 2015
Net Revenue 32,859 36,249.1 36,914.7 40,008.1
Net Income 4,352.3 4,491.8 4,422.1 4,763.9

The company has experienced conservative growth during the past three years. Since December 2012, the company has been able to increase its net revenue and net income by 21.8% and 9.5% respectively.

Most recently in 2015, the company was able to increase its net revenue by 8.4%, and its net income by 7.7%. Success in 2015 is primarily attributed to its success in selling sportswear, as turnover for these products rose by 17%; sportswear sales composes approximately 40% of the company's revenue. This growth is considerable, as footwear sales only increased by 3%. The company also added 876 additions to its footwear store network, which represents an increase of 6.6% year on year. Moreover, it also added 504 stores to its apparel and sportswear network, which represents an increase of 8.5%. An increase of store openings, specifically in the apparel and sportswear network, will prove crucial to the company's future growth.

Growth and Earnings Projections
With attractive valuation, and a superior standing in its growth and sector, it is further edifying to know that there is conservative growth and earnings projected for 2016 and 2017.

Mean Projection

Sales

EPS

2016 Growth

8.9%

11.1%

2017 Growth

8.2%

6.7%

Source: Reuters.

The company's sales are projected to increase by 8.6% annually for the next two years, and the company EPS is projected to increase by 8.9% annually for the next two years. Investors who prefer a company with conservative growth ahead, coupled with attractive valuation, will find company to be an excellent pick.

Conclusion

Belle International is a company in China that will be able to thrive and endure amidst slowed economic growth; slower growth in China can still be classified as acceptable growth. The company has already established itself as a leader in the footwear industry, and its expansion into apparel and sportswear is proving to be even more successful. Given past financial performance and its valuation, coupled with conservative growth ahead, Belle International is an easy pick for investors seeking exposure to China.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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