The Market Is Changing Rapidly, And The Profit Margin Of The Brand Is Going To Privatization.

After the announcement of the latest performance and the announcement of the sale of North American business to Differential Brands Group Inc. (DFBG) by Li Biao brand (00787), I reread the announcement documents of GBG and Li Feng (00494) recently, and a series of market open information.

From the perspective of literature reading, combined with a series of understanding of the development of the two companies in recent years, I think GBG will have a large capital operation after the sale of assets.

One possibility is that Li Feng may re privatize the GBG that was split 4 years ago.

This article mainly discusses from the perspective of strategic logic rather than investment data.

From the point of view of investment, only privatization can be realized, and Zhu Geliang is more suitable after doing things.

First, the background of splitting up in 2014

Let's go back to 2014 to see the situation of Li Feng's splitting and listing.

As we all know, Li Biao is separated from its own distribution business by Li Feng.

Li Feng has been making good profits since 2004, and a large proportion of its profits are used to acquire a series of brand licensing and brand management businesses.

Of course, there are many brands in the acquisition business which are very unsatisfactory (represented by the Cathy Van Zeeland acquired at a high price).

In 2012, before the acquisition of the brand business suffered a serious loss and dragged down the business data of Li Feng, Li Feng made a major adjustment to LF USA in 2013. After the suspension of all bad brands, the performance of related businesses improved significantly, and made an important contribution to Li Feng's earnings data.

Against this background, Li Feng only put forward the independent listing of brand authorized businesses with good performance in 2014.

Because at that time, Feng believed that the profit mark had the possibility of high growth, high profit and high valuation.

After splitting, the distribution business in Li Fung mainly focuses on providing procurement and logistics services to wholesale and retail customers, and the core competency lies in supply chain efficiency and cost management.

For example, when Li Feng acts as a purchasing agent for a brand, the emphasis is usually on choosing the most suitable producer and factory to deliver the product at the highest price. The fashion, design and brand characteristics of the product are usually provided by the brand itself.

The core competencies required for the GBG business to be distributed in brand clothing, shoes and fashion accessories are in design, marketing, brand management and brand development. The key to business success is to provide consumers with attractive products.

From the difference between GBG and Li Feng's distribution business, Li Feng only needs to impress the brand side and the retailer, the end of the "one buy one sale" paction, while the GBG performance needs to be more directly linked to the sales generated by the consumer in the final product, and the product must be attractive.

It can be imagined that the simple "one buy, one sell" distribution profit is meager.

In the 2004-2013 year, although Li Feng's profitability is excellent, but in this fashion industry chain, Li Feng sees more about its own profit, while the brand side is profiteering.

This is also the original intention of Li Feng's acquisition of brand licensing business with such a large amount of cash.

For Li Feng, authorized business is actually a leveraged business, unlike micro-blog's other distribution businesses, it only needs to pay a small amount of royalty to win higher profits.

For leafeng, the current business model, low gross profit is hard to avoid.

Of course, Feng's confidence in corporate governance is that Le Yumin turned lefung from 3-4B into a 20B company, and Feng agreed that he could make the more profitable distribution business as an equally excellent growth company.

In addition, it coincides with the fact that Spencer has accumulated enough experience and has arrived at the age of Li Feng.

So, there was a spin off of Libao in 2014.

It is a long story to explain the breakup of GBG. It is hoped that we can understand the logic of splitting, rather than simply delamination of high goodwill junk assets.

Two, GBG positioning changes since separate listing

After the GBG spin off, the face is an unprecedented American fashion.

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In a bad market, brand licensing business can easily become a bad business.

Because most of the brand businesses need to pay the royalties per year, GBG should not only protect the bottom, but also ensure growth.

Many brand management companies are actually born in the depressed fashion market, because the brand has become a hard to earn asset, and the price is declining year by year.

At such times, the business progress of GBG is actually pretty good. This is pretty good, but in fact it has been offset by the depression of the market.

Because the brand portfolio of GBG is mainly concentrated on two or three line brands, and the impact is the biggest in the 5 years of recession.

Facing the undesirable market, Bruce has changed many times to the positioning of Li Biao.

From the beginning of 2016 to all public documents in 2016, the scale of GBG was very prominent.

The bigger the better, the richer and safer the combination. Obviously, for Feng and Bruce at that time, GBG is a good business that is worth investing in real gold and silver.

At that time, slogon was "BRANDS WITHOUT LIMITS" or "GLOBAL PRESENCE. GLOBAL PLATFORM. GLOBAL BRANDS.". By 2017, GBG found that the market was not ideal at any time, and scale could not bring very good returns.

Therefore, the cover of the annual report has such a style.

It was not until the end of 2017 that the management of GBG began to stress that "cooperation between brands and GBG is more profitable than self employment" (CNBC is GBG's program), and Lao Bruce Rockowitz began to emphasize in the earnings report that "GBG is the best long-term partner of brand".

What this paragraph wants to illustrate is that the sale of Li's assets is not without signs.

Through years of growth, the company has gradually pformed from a "brand based growth" company to a "helping brand growth" company. This is the gradual evolution of a brand management company in positioning. Although there are still many problems in the specific operation, GBG has not been getting worse and worse in recent years, facing the poor market. It has developed and improved, and has played an important role in the brand management industry chain.

From Party B to Party A, there are many changes worth exploring and excavating.

People who are familiar with the industry should be able to feel that GBG is a very popular partner for many brands, which is quite different from the common licensing providers (such as GIII).

In the negotiation of brand authorization, GBG has already had the strongest bargaining chip in the industry by using its platform built in the fashion industry.

Three, three year plan "future supply chain" demand

In the new three year plan of Li Feng, all the strength points revolve around a core "future supply chain".

Where does the future supply chain come from? Clothing,

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In the supply chain business of Li Fung, clothing and footwear are the largest and the most impacted by the new retail environment.

The core of the future supply chain is speed driven and data driven.

The purpose is to reduce the purchasing cycle of fashion from 40 weeks to 12 weeks, and make use of big data to enable all participants in the entire supply chain to increase efficiency and form a closed ecosystem.

The whole ecosystem has two entrances. From the vendor portal, Li Feng needs to get the design department of the profit label. From the customer portal, Li Feng needs to get the profit standard, which has been built directly to the retail business of customers in recent years (especially the recent OVS and Kids HQ projects in China), marketing operation platform (Romelle Swire, etc.), brand management platform, etc.

Li Feng's purchase of profit label can directly complement the short board of the business module when creating the "future supply chain".

Four, Li Feng bought the benefits of the target.

1, Li Biao is the best test field for Li Feng to build the "future supply chain".

The use of "future supply chain" can directly promote the development of the business.

2, at present, most of the remaining wholesale business on shore is the garment business, which is directly coincident with the business department of the company.

It may enhance operational synergy and new business prospects (especially brand management business), and achieve these goals by optimizing production capacity, saving internal costs, expanding brand management expertise and enhancing bargaining power and customer relationship between the two companies.

In particular, the two have a large number of cross selling opportunities in brand management and procurement services.

For example, Li's brand is currently less than 60% of its total purchases through Li Feng. Liyuan can directly hand over the purchase of the remaining 40%+ to Li Feng.

3. The remaining assets of Li Biao brand after the sale of North American assets have a good growth.

At present, Li Feng's original trade business is still in a shrinking cycle.

The privatization of Lifeng will bring a new growth engine to Li Feng.

4, the risk of integration is relatively low: Based on the close relationship between Li Feng and Li Biao, coupled with the corporate governance practices, information technology systems and corporate culture of the two companies.

5, maintaining the listing status of the brand is not cost-effective. The market value of the profit margin is depressed for a long time. With its listing status, its ability to raise funds to the stock market is extremely limited, so it is no longer worth the cost of maintaining the brand listed on the stock exchange.

Below 5 billion market value, it is even difficult for the brand to continue to maintain the status of Shenzhen Hong Kong Tong, which may further lose liquidity.

6, enhance shareholder value held by holders of shares of a profit brand because of spin off.

Increasing the equity and market capitalization of Li Feng will make it possible to return to Hang Seng stock.

Five, other clues.

1, Li Feng sells three wholesale businesses on the shore, leaving most of the garments in the wholesale business on the shore.

Coincidentally, GBG also sold its home business in March this year.

The two began to focus on developing their fashion and shoe business.

2, GBG said in its performance announcement that it will continue to take measures to enhance shareholder value in addition to distributing special dividends.

3, GBG had a credit default in the last fiscal year. Nearly 1 billion 200 million of the loans were classified as current liabilities, while GBG in the current liabilities declined.

In the financial year, GBG did not have the maturity of the long term loan principal, and GBG was not difficult to avoid the credit default by postpone the payment of Li Feng's loan.

In the latest financial year report, Li Feng showed that the bank did not use the credit.

GBG the financial arrangement for this credit default is very suspicious and does not exclude active default.

4, after the two companies have sold their business, they have left a lot of cash in addition to their commitment to allocate special dividends. Although the two mentioned in their earnings reports many times, group businesses do not need too much cash to maintain their accounts.

In addition, the two businesses do not need large amounts of cash in their current businesses.

In particular, GBG said it would make further efforts to reduce costs, but would not pay more debt.

5, recent

There is a huge increase in empty warehouse and a large number of research reports lacking in common sense for profit.

In particular, issued a research report which is difficult to understand and downgrade.

Looking at the latest GBG earnings, you can also find many suspicious signs.

According to my understanding of the literature, I think GBG will carry out other capital operations to enhance shareholder value after the sale of assets.

It is likely that the situation will be: the GBG will be privatized by Li Feng four years ago, and the probability of time node will appear before the announcement of Li Feng's semi annual report in August.