In the new year of sports, can Hillhouse take the new track?

Perhaps ten years later, we will once again witness a bumper harvest on the sports track.

Following the passionate European Cup and the America’s Cup, the Tokyo Olympics also kicked off. The super sports big year that was late due to the epidemic has finally arrived, and the major sports brands and capital markets behind it have also become alive.

Although the sporting goods sector of Hong Kong stocks has experienced a full- scale decline due to the profit-making sell-off, Xtep International (01368.HK) has recently reported a lot of good news:

The first is the profit forecast. The net profit in the first half of the year is expected to increase by more than 65% year-on-year, and the performance of the interim report will increase sharply;

The second is to get an investment of about 1 billion Hong Kong dollars from Hillhouse’s capital. The stock price opened nearly 15% higher that day, and the increase was over 30% at one time. The market value also exceeded 30 billion Hong Kong dollars at one time, setting a record high.

This shot by Hillhouse gave Xtep a truly “unusual feeling.” As of the close of the market on July 23, Xtep’s share price was 11.88 Hong Kong dollars, an increase of 215% from the 3.77 Hong Kong dollars at the beginning of the year. The market performance in the same period far exceeded Anta and Li Ning .

What is more worthy of attention is that in the long-lost sports year, Hillhouse chose to settle in Xtep. What kind of investment logic and layout intentions are hidden behind it?

Hillhouse’s true target

Hillhouse’s 1 billion Hong Kong dollar investment in Xtep is mainly divided into two parts.

One is to invest 65 million U.S. dollars (approximately HK$505.7 million) to jointly develop the global business of its “Gasway” and “Paladin” brands with Xtep Global, a subsidiary of Xtep; the second is to sign a subscription agreement for convertible bonds , The total investment principal is 500 million Hong Kong dollars. After the convertible bonds are fully converted, Xtep’s equity in Xtep Global will be reduced to approximately 80%.

In May 2019, Xtep announced that it had acquired all of the issued shares of E-LandFootwear USA Holdings Inc., a subsidiary of South Korea’s “E-LandFootwear USA Holdings Inc.,” for US$260 million (approximately RMB 1.75 billion) in cash. E-Land Footwear USA Holdings Inc. is the ultimate holder of brands such as K-Swiss, Palladium and Supra.

Public information shows that Gasway is an American brand that has been established for more than 50 years. In 1966, it launched the first all-leather tennis shoe K-Swiss Classic. After that, it became popular all over the world and is now an authoritative representative of tennis shoes. Paladin also has a long history. It was founded in France in 1947 and has now become one of the most well-known military boot brands in the world.

Xtep has high hopes for these two world-renowned sports brands, hoping to open up the high-end market and transform into a global sporting goods company with international brands and diversified products.

BT Finance reviewed the development history of Xtep and found that in 2019, it frequently launched multi-brand and global business. Two months before the acquisition of Gasway and Paladin, Xtep also won the “Rolls-Royce in the running shoe industry”, Saucony, one of the world’s top four jogging shoes, and Merrell, a mountaineering shoe brand. Mele).

Thus, special steps formed a group of “Troika” – the main brand of the mass of the route to K-Swiss, Paladin as the representative of the fashion movement routes to Suokang Ni and Mele represented professional sports route.

In the new year of sports, can Hillhouse take the new track?

Source: Screenshot of Ding Shuibo, Chairman and CEO of Xtep International on Weibo

Industry insiders believe that Xtep is following Anta’s success.

Anta successfully entered the high-end market after acquiring FILA, an old Italian sports and leisure brand in 2009; surpassing Li Ning in 2014 and becoming the leader of China’s sports goods industry; acquiring Spandi in 2015, accelerating Anta’s becoming The industry’s first Chinese company with a revenue of over 10 billion yuan.

Today, thanks to the multi-brand and group route, Anta’s market value has reached 432.533 billion Hong Kong dollars, which is equivalent to 2.3 Li Ning and 15.3 Xtep, and is firmly on the top of the list. FILA has surpassed Anta’s main brand and has become the group’s main source of income: in 2020, FILA’s revenue increased by 18.1% year-on-year to 17.45 billion yuan, accounting for 49.1% of Anta Group’s total revenue.

Judging from Xtep’s financial report data, although the fashion sports sector represented by Gasway and Paladin has not yet become a revenue pillar, the growth rate is staggering-the full-year revenue of 2020 will be nearly 1 billion yuan, a year-on-year increase of 114.4%, and the proportion is from The 5.7% increase in 2019 was 12.2%.

In 2020, when the overseas epidemic is severe, Geshiwei and Paladin will still perform well. Online retail sales in the Americas, Europe, and the Middle East and Africa (EMEA) have all achieved strong growth, up 45% and 52% year-on-year respectively.

In the new year of sports, can Hillhouse take the new track?

Source: Xtep’s 2020 financial report

In contrast, although Xtep’s main brand contributed 86.9% of revenue, it was down 7.9% from the same period last year; gross profit margin also decreased by 4.9% from the same period last year to 38.9%; operating profit was 1.106 billion yuan, a year-on-year decrease of 20.2 %; operating profit margin was 15.6%, down 2.4% year-on-year.

The sluggishness of the main brand has dragged down the overall performance of the group to a certain extent. Therefore, Xtep is gradually focusing on Geshiwei and Paladin, leaning a lot of resources to support their growth.

As of December 31, 2020, Gasway has a total of 43 self-operated stores in the Asia-Pacific region. The first self-operated store in Mainland China is expected to open in early 2022; Paladin has 54 and 3 self-operated stores in the Asia-Pacific region and Europe respectively. Among them, 21 stores are located in mainland China.

From this point of view, the two major international brands to Xtep are likely to become new strategic fulcrums and performance engines just like FILA to Anta. Hillhouse has made a big bet on Xtep. There is no doubt that it is precisely because of the development potential of these two brands and the room for appreciation for Xtep.

Create another miracle?

Hillhouse Group was established in 2005, with a management scale of nearly US$100 billion, making it one of the largest private equity funds in Asia. The founder, Zhang Lei, can be regarded as the domestic investor who likes to intervene in project operations, and his “first generation shoe king” Belle Shoe City trader case is extremely classic.

On July 27, 2017, Belle International, which has been listed for ten years, announced that the privatization proposal formally took effect. Belle had its glorious years . It was the first mainland blue chip stock in the Hong Kong stock market, with a market value exceeding 150 billion yuan. However, since 2013, the performance has been declining year by year, and the market value has shrunk by nearly 80%.

Hillhouse played a leading role in its privatization process. According to data, after Belle’s privatization, Hillhouse became the controlling shareholder, holding 56.81% of the shares. According to media reports, the founder of Belle was very old and hoped to cash out his retirement through privatization. To revitalize Belle, Hillhouse must either introduce a new management team or play the game in person.

Hillhouse chose the latter.

In Zhang Lei’s view, although Belle’s market value and market share have both declined, its cash flow is not lacking. More than 20,000 self-operated stores across the country have built a top retail network. As long as the business model is rebuilt, high-tech empowerment is needed. , It will be reborn.

In the end, Hillhouse chose the field of sports shoes and apparel for Belle as a breakthrough.

From a market perspective, sports shoes and apparel are in a stage of high growth, with a compound growth rate of 12% from 2014 to 2018, far exceeding the 5% level of the overall shoe and apparel market; from a business perspective, Belle’s international business line Bobo’s market share in the field of sports shoes and apparel ranks first in the country, reaching 15.9% in 2018, and its retail sales are 30% higher than the second place.

Hillhouse has carried out the digital transformation of the whole process of Taobo, which has significantly increased the value of its assets in a very short period of time. On October 10, 2019, Topbo International Holdings Co., Ltd. landed on the Hong Kong Stock Exchange. It rose 8.7% on that day, and its total market value reached HK$57.1 billion, even surpassing Belle’s market value of HK$53.1 billion when Belle was privatized two years ago. It is a miracle .

Up to now, Topbo, as the largest sports goods distributor in China, has a market value of more than 76 billion Hong Kong dollars. In 2020, it will achieve 36 billion yuan in revenue, a year-on-year growth rate of 6.8%.

In the new year of sports, can Hillhouse take the new track?

With this battle, Hillhouse and Zhang Lei reversed the previous image of capital “barbarians” in one fell swoop. With their deep insights and unique foresight into the consumer industry, as well as strong resource integration capabilities, they finally realized the double maximization of capital value and corporate value. .

Hillhouse’s investment in Xtep this time has also maintained a consistent style of doing it personally.

In addition to the US$65 million strategic investment, Hillhouse also acquired a 20% stake in Xtep Global through the subscription of convertible bonds. Xtep said Hillhouse will also send directors. This means that Hillhouse will participate in the actual operation of Xtep just like investing in Belle.

And this is exactly what Xtep looks for most.

Xtep expressed confidence that Hillhouse “in the consumer retail industry, especially in deep vertical knowledge of sports shoes and apparel industry, as well as its extensive online and offline network under capacity and will bring Chong K-Swiss and Palatine business operations SGD “It will greatly enhance the competitiveness and profitability of the two brands, and look forward to fully releasing the potential of the two brands in China’s fast-growing sportswear market.”

Can Hillhouse create another “fighting miracle” to help Xtep achieve a gorgeous turn ? It is worth looking forward to.

Hillhouse’s sports layout

“Hillhouse’s mission is to discover the companies with the most long-term competitive advantages and use the longest line of money to help companies realize long-term value.” Under Zhang Lei’s investment philosophy of “long-termism”, Hillhouse has had many brilliant records, such as investing in and laying out the medical track.

In 2010, Liu Qiangdong determined to build his own logistics, but suffered from no support. It was Zhang Lei who saw the future imagination of He spent 300 million U.S. dollars and also brought in Tencent as a strategic investor to help Liu Qiangdong and get through the difficulties. Today, JD Logistics has become one of JD’s core competition barriers and has successfully landed in Hong Kong stocks, with a market value of over HK$200 billion.

Zhang Lei is quite prescient in the medical and health track frequently. It is reported that Hillhouse has invested in more than 200 projects in the medical and health field so far, with a total investment of nearly 200 billion yuan. In 2020, Hillhouse ushered in a bumper harvest, harvesting 22 medical enterprise IPOs.

Therefore, as a top domestic investment fund, Hillhouse will attract attention in related fields as long as it is launched. Looking at this long-term investment logic, Hillhouse has recently made frequent moves in the field of sports, and the direction behind it is a bit intriguing.

In the new year of sports, can Hillhouse take the new track?

BT Finance has found that since 2017, Hillhouse has begun to aim at the sports track, not only has the layout of sports shoes and clothing categories such as Taobo, Xtep, Particle Fever, and running shoes On Running, but also involves music sports. Internet smart fitness platforms such as, keep , e-commerce platforms, event ticketing live broadcasts and many other subdivisions.

China’s sports consumer market has huge room for imagination. The article “Several Opinions on Accelerating the Development of Sports Industry and Promoting Sports Consumption” issued by the State Council in 2014 stated that the total scale of China’s sports industry will exceed 5 trillion yuan by 2025.

On the whole, the largest base of the sports industry is the production of sports shoes and apparel, which account for about 70% of the industry’s total revenue. The current market structure is relatively stable, with Anta, Lining and Xtep occupying the top three local sports brands. Among them, there is still a big gap between Xtep and the former two. Hillhouse has the opportunity to help Xtep achieve value-added through its own “post-investment empowerment”.

Under the impact of the new crown epidemic, the strength of the Chinese market has been increasingly recognized by international brands.

In 2020, the growth rate of the global sports footwear and apparel terminal market fell by 15%, while China only fell by 2%, and the market size has reached approximately 315 billion yuan. According to Euromonitor’s calculations, China’s terminal market is expected to still achieve a 23% recovery growth rate in 2021, and continue a double-digit growth center.

Therefore, the big names in international sports are also targeting China. This coincides with Hillhouse’s investment strategy of “seeing more China”.

For international brands, Hillhouse is not only a pure investment, but also deeply involved in the other party’s business in the Chinese market.

On April 29, 2020, Hillhouse Capital announced the establishment of a joint venture with Burton, the world’s number one snowboard brand, to jointly operate Burton’s China business. With the approach of the 2022 Beijing Winter Olympics and the popularization of national ice and snow sports, China will be the world’s largest winter sports market in the future. The overall annual growth rate of China’s veneer market is expected to be between 25%-30% in the next few years. It can be seen that the timing of Hillhouse’s shot is just right.

On November 13, 2020, Fanatics, the world’s largest sports e-commerce platform, announced that it and Hillhouse Capital will invest 50% each to establish a joint venture company in Shanghai to carry out Chinese localized sports product design, procurement, and authorization services. Fanatics not only cooperates closely with sports brands such as Nike and Adidas , but also holds the right to produce and sell professional league licensed products such as the NFL (National Football League) and MLB (Major League Baseball), with annual sales exceeding US$3 billion. Fanatics said that the development space of the Chinese market will reach billions of dollars, and it has always been their focus.

It is worth mentioning that with the arrival of the Olympic Games and other sports events, and the impact of the Xinjiang cotton incident, domestic consumers’ recognition of national brands has continued to increase, and domestic sports brands have ushered in a very good opportunity for development. In the future, China has the opportunity to cultivate local sports brands that rival Nike and Adidas. And this is also an opportunity for Xtep and Hillhouse.

It can be seen that the domestic sports industry is on the eve of the outbreak, and hills are frequently deployed, especially heavyweight brands that have invested in multiple sub-tracks in the past two years, taking the lead. Perhaps, ten years later, we will once again witness the bumper harvest on the sports track.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-07-27 04:50
Next 2021-07-27 04:51

Related articles