Sector financial performance:

This company, who primarily licenses the consumer brands that it owns or presents to retailers or manufacturers/distributors and also provides service for design, production, marketing, and distribution, has been grouped into branding apparel sector in clothing industry.

Unfavourable sales climate/slowing down traffic has caused significant decline in sales and closure of stores among retail and wholesale customers of branding management companies in 2016/17. And the impact has apparently been passed to their supplier of apparels, while one year delayed, as ways such as low renew rate of licensing agreement, increasing write-off of existing agreement, or decreasing royalty revenue related to brand products sales. As data indicated, the comparable royalty/licensing presented an average 6-8% annual decline since 2017.

As sales decreased, companies’ margins also fell significantly. The current typical operating margin of companies is in the range of -4% and 50% with a mean (27%). And while increasing acquisitions, companies are facing large decrease in cash flow generated by their brands in the past several years due to increasing financing costs and shrinking margins.

According our analysis, companies’ enterprise price/EBI ratios are about 11-15 with interest/EBI ratios of 50%.  Enterprise Price / Sales: 2.9 and stock price / sales: 0.6.

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Company performance:

The upward trend in this company’s licensing revenue ceased in first half of 2017 after the large increase previous year. And the downturning licensing revenue seems to be continuing in 2018.

The first ix months of fiscal 2019 compared with the same period of 20189 (ended 20180630)

The net sales of this company increased about 2.5% primarily attributable to increase in other than apparel sales offset by decrease in licensing revenue.

The fiscal 2018 compared with the 2017(ended 20171231)

The net sales of this company decreased about 3% primarily attributable to decrease in licensing revenue offset by increase in wholesale.

The first six months of fiscal 2018 compared with the same period of 2017

The net sales of this company decreased about 4% primarily attributable to decrease in licensing revenue offset by increase in retail.

Fiscal 2017 compared with 2016

The net sales of this company increased about 18% primarily attributable to increase in license revenue of interactive television business offset by decrease in e-commerce.

Fiscal 2016compared with 2015

The net sales of this company increased about 35% primarily attributable to acquisitions.

This company’ operating margin is about 21% in 2017 down from about 29% of fiscal 2014 as a result of significant expansion of operation and infrastructure in new acquired brands and business such as increased employees and SG&A expenses. And the margin continued to go down in 2018 due to costs cutting.

Stock price

This stock currently has an enterprise price/EBI ratio of about 15($2.2). We think that its stock is being relatively slightly undervalued with its peers considering its brands’ ability to maintain declining licensing revenue.