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Public company info - China Lilang Ltd. , 01234.HK

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China Lilang Ltd., 01234.HK - Company Profile
Chairman Wang Dong Xing
Share Issued (share) 1,197,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Apparel
Corporate Profile Business Summary: The principal activities of the Group are manufacturing and wholesaling of branded menswear and related accessories in the PRC. Performance for the year: The Group’s revenue for the year decreased by 26.7% to RMB2,680.8 million, which was after the provision for inventory buy-back totaling RMB390.0 million. Net profit was RMB557.2 million for the year, down by 31.4%, which was mainly attributable to the decrease in sales revenue for the year and the provision for inventory buy-back. Earnings per share were RMB46.53 cents, down by 31.4%. Business Review: In 2020, the Pandemic raged worldwide and the friction between China and the United States continued, both of which exerted pressure on economic development. The macro environment in China faced various uncertainties. The central government adopted effective prevention and control measures to bring the Pandemic under control in China during the second half of the year. A new development pattern was proposed based on domestic circulation, with domestic and international circulations reinforcing one another, enabling the enhancement of domestic demand, encouraging innovation and promoting growth. This successfully turned the situation around and the economy recorded an unexpected recovery in the second half of the year. According to the National Bureau of Statistics, the country’s gross domestic product (GDP) exceeded RMB100 trillion for the first time in 2020, with a year-onyear growth of 2.3%. Although the annual total retail sales of consumer goods decreased by 3.9% year-on-year, the growth figure rebounded from negative to positive territory in the second half of the year and reached growth of 4.6% in the fourth quarter. Retail sales of apparel, footwear, headwear and knitwear followed a similar trend, with annual retail sales down by 6.6% year-on-year and retail sales up by 3.8% year-on-year in December. In face of the complex and volatile retail market, China Lilang adopted flexible strategies and promoted the new retail business to give full play to complementary advantages of online and offline. The Group also strived to keep the channel healthy and decisively cancelled some of the spring and summer orders while strictly controlling pre-orders for the fall and winter collections. The total retail sales of products resumed growth in the second half of the year, and both the inventory level and its ageing have improved. In addition, the Group continued its strategy of providing products that offer excellent value-formoney and committed to original and individual designs. The Group’s products show cost advantages after the continuous improvement of supply chain management over the past few years. The Group also promoted its brand to extend to customers of a younger demographic. A number of crossover products were launched during the year and artists were commissioned as brand ambassadors in the fourth quarter, drawing widespread attention from the market and consumers. For the year ended 31 December 2020, the Group’s revenue reduced by 26.7% year-on-year to RMB2,680.8 million, while net profit was RMB557.2 million and earnings per share were RMB46.53 cents, a decrease of 31.4% year-on-year for both. During the year, the Group maintained a healthy financial position with sufficient cash flows. The Board of Directors recommended the payment of a final dividend of HK19 cents per share and a special final dividend of HK8 cents per share, thus maintaining a relatively high payout ratio. Prospects: Going into 2021, the economies of countries across the world will continue to be hit hard by the Pandemic, posing challenges for the macro-economic environment. Nevertheless, with its effective epidemic control measures, China’s economy has been recovering rapidly. Though there are still a few sporadic outbreaks, social activities have generally returned to normal, providing favorable conditions for the retail market. In addition, the new structure of dual circulation as proposed by the central government encourages residents to expand their consumption, which can lead to consumption upgrade and drive economic growth. Therefore, the Group is cautiously optimistic about the development of the retail market. In 2021, China Lilang will adopt a prudent strategy for store openings which will focus on optimizing the existing store network, and will further strengthen the management of the retail network. The Group will continue to add more stores in quality shopping malls in provincial capitals and prefecture level cities and will also add stores in outlets as a recurring channel for inventory clearance. The plan for the year is to add 100 to 150 stores and the target for total retail sales growth is 10% or more. In order to more closely control the retail stores and reduce inventory risk, the Group will reform the operation model of the core collection in 2021 by converting selected distributors with higher management capability to the consignment operation model starting from the 2021 spring and summer collections. This initiative covers 1,388 stores in areas including Fujian, Shaanxi, Guizhou, and Henan (accounting for approximately 56% of the total store count of the core collection as at 31 December 2020 and around 60% of revenue from the core collection for 2020 before inventory buy-back provision). Under the consignment model, the Group would be able to manage inventory more effectively as product transfers will be more flexible and buffer inventory for individual stores could be reduced. As for store operations, the consignment model would enable the virtual inventory of individual stores to expand and adjust in response to market changes. This will help to improve store efficiency. Furthermore, the consignment model will allow the Group to continue to leverage the retail management talents of distributors while using the Group’s financial resources to accelerate channel upgrade in any particular regions by adding stores in quality shopping malls in provincial capitals and prefecture level cities. After converting 1,388 core collection stores to the consignment model, the Group expects the book inventory will increase while the credit periods of trade receivables will be shortened, and the point of sales recognition will be delayed. The Group has raised the wholesale price starting from the 2021 spring and summer seasons to make up for the possible inventory provision resulting from taking up the inventory risk under the consignment model. As part of the change to the consignment model, the Group would buy-back from these 1,388 stores the past-season products of approximately RMB390.0 million as at 28 February 2021. Provision for such inventory buy-back was made in 2020 financial statements and deducted from revenue. The related inventories of approximately RMB309.1 million, measured with reference to the former carrying value of the products, were recognized as other current assets in the 2020 financial statements. The Group will continue to promote e-commerce and since January 2021 it has turned its online stores into self-operating, instead of distributor-operated stores. This could improve the management and control of online stores and facilitate the launch of special edition products online. For the 2021 fall and winter seasons, the Group plans to work with suppliers with environmental protection accreditation to launch ecofriendly special edition products online, which will be made using fabrics from recycled plastics and fast-growing non-edible plants. In addition to online shopping platforms, online stores have been set up on the WeChat Mall for both the core collection and the smart casual collection. It is expected that the customer base of the WeChat store will continue to expand, complementing the physical retail stores with virtual inventory to increase sales efficiency. As for brand promotion, the Group will continue to organize a range of activities through online and offline channels to promote its brand, and launch crossover products with China Daily or other parties. The use of new store images to showcase a more fashionable and fresh brand image to attract more customers is also in the plan. The seventh-generation store image renovation of the core collection will gradually roll out to the existing stores, with a plan to cover about 500 existing stores in 2021. In doing so, the Group will use different decorative materials, subject to the different market positions of the stores, to achieve better cost efficiency. It also plans to launch a new store image for the smart casual collection in the second half of 2021. As for product positioning, the Group will continue to adhere to the strategy of providing products that represent excellent value-for-money. As supply chain management has improved over the past few years, the Group’s products show cost advantages over those of its peers. In addition, the project to enhance the fashion and design elements of the smart casual collection since the 2020 summer season will be completed by the 2021 spring and summer seasons, which is expected to improve the profit margin of the smart casual collection. Operations at the new headquarters in Fujian began in February 2021, providing a new step forward for the Group’s development. Phase I of the new logistics park is targeted for opening in the second half of 2021, which will facilitate better inventory management within the Group. The Pandemic has accelerated the consolidation of the menswear industry where only the fittest would survive, and competitive brands would stand out and gain a larger market share. As a well-established menswear enterprise, China Lilang is confident that it will continue to outperform other industry peers. The Group will further improve its sales and marketing management and prepare itself for the full recovery of the market. In the long run, China Lilang will retain its multi-brand strategy as it endeavors to strengthen its product competitiveness and value-for-money. This will further consolidate its leading position in the menswear industry in China and realize sustainable long-term growth to reward its shareholders, staff and customers for the support they have shown to the Group.

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