Why Bolina's 1H13 results were disappointing

Sales in China were lacklustre.

According to Maybank Kim Eng, Bolina’s NPAT of CNY117m (-12.3% YoY, 41% of our FY13 earnings forecast) was 13% below our estimates on weaker-than-expected revenue (CNY412m, +3.2% YoY, 42% of our FY13F estimates) and gross margins (down 11bps YoY to 47.74% vs our projection of +1ppt YoY).

Here's more:

SG&A was in line (+30bps YoY). By markets, sales from the Americas/China/Europe were +10%/flat/+13.4% YoY. The branded/non-branded sales split was 62%/38% in 1H13 against 64%/36% in 1H12. AR/Inventory days were healthy at 27/69 days. An interim dividend of 4.5 HK cents was declared (30% payout; 1H12: Nil).

Key negatives: i) lacklustre sales in China; ii) it achieved only three net POS additions in China YTD (end-FY12 POS: 450) while the number of distributors fell by eight YTD to 187. The company is, however, keeping its medium-term POS target of 1,000 intact.

Bolina attributed the weak sales performance partly to the longer-than-expected ramp-up period for its fifth production line, which led to a shortage of capacity. Sales guidance intact.

During our chat last night, management reiterated its FY13F sales growth guidance of 20%. Management is also confident that Bolina can achieve gross margins of no lower than the existing level going forward.

Of note, its GPM for branded products was up by 1.8ppts YoY in 1H13. As for POS, the company has terminated its cooperation with some non-performing distributors for better long-term growth. An analyst briefing will be held this morning. We will review our estimates and recommendation afterward.