Sector financial performance:

This company, who primarily licenses the brands that it owns or presents to retailers or manufacturers/distributors, 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 decrease in royalty revenues accelerated in the past two years attributable to brands related to women and men’s apparels, which seems to consistent with decrease in sales of apparels retail and wholesale across whole industry.

The first six months of fiscal 2019 compared with the same period of 2018(20180630)

The net licensing revenues of this company decreased about 11% (10% for 2Q) primarily attributable to sales of certain brands and decrease of 9% (7%for 2Q) in comparable licence such as men’s and women’s apparels.

The fiscal 2018 compared with 2017(20171231)

The net licensing revenues of this company decreased about 11% primarily attributable to sales of certain brands and decrease of 7% in comparable licence such as men’s and women’s apparels.

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

The net licensing revenues of this company decreased about 11% primarily attributable to sales of certain brands and decrease in men’s and women’s apparels offset by increase in home products’ licensing.

Fiscal 2017 compared with 2016

The net licensing revenues of this company decreased about 3% primarily attributable to sales of certain brands and decrease in men’s and women’s apparels offset by increase in home and entertainments brands’ licensing.

Fiscal 2016compared with 2015

The organic licensing revenues of this company increased about 1% primarily attributable to increase in entertainment’s brands offset by decrease in men’s and women’s apparels and home brands’ licensing.

This company’ operating margin is about 44% in 2017(intangible asset amortization included) down from about 52% of fiscal 2014 as a result of decreased sales and increasing account receivable’s reserves and write-off. And this margin continued to decline in 2018 to about 38%.

Stock price

This stock currently has an enterprise price/EBI ratio of 15 ($0.3). We think that its stock is being relatively overvalued considering that the significant decrease in its revenue and value of its brands may not be able to explain this relatively high ratio than its peers.