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We invited the management of Shuhua Sports to the CICC Investment Forum 2021 to speak with investors about the firm’s business and development roadmap.

Comments

Shuhua Sports to benefit from policy support for sports industry development. In August, General Administration of Sport of China released the National Fitness Plan (2021-2025). The plan proposes a Rmb5trn target for the domestic sports market in the next 5 years. Meanwhile, students receiving a well-rounded education are increasingly encouraged to do more physical exercise, which we think will boost demand for fitness equipment. Shuhua is a famous sports and fitness brand, and it is a supplier for the 2022 Winter Olympics and Winter Paralympic Games. This should further enhance the firm’s brand influence. Shuhua provides leading sports and fitness products in terms of appearance, quality and smart functions. Its strong online presence also secures visible competitive advantages for the company. We expect Shuhua to benefit from the sector boom and policy support, and to steadily expand market share.

Upbeat on online business growth and omni-channel expansion. The COVID-19 pandemic since 2020 has hindered the growth of fitness equipment sales at physical stores. Meanwhile, online sales growth picked up. Shuhua began using online channels in 2009, and it has opened flagship stores on major e-commerce platforms such as Tmall, JD, Xiaohongshu and VIP. The firm ranked no.1 among online fitness equipment brands by sales value, with online market share reaching nearly 20%. It is also seeking expansion on new e-commerce platforms such as Douyin and Kuaishou and new marketing channels such as livestreaming e-commerce. We see large upside in the firm’s online sales. Shuhua is also revamping its physical stores.

Continued progress in developing smart products and integrated fitness solutions; bullish on potential transformation towards a health services provider. Smart products: The company is actively exploring smart functions and services in its fitness products. Its major products (including rowing machines, spin bikes, and outdoor fitness trails) are all installed with a screen or can be connected to a mobile phone, so that it can provide smart services such as online fitness courses, fitness data, virtual sceneries, and social networking. Moreover, sensors such as cameras and counters installed on strength training equipment can automatically record the exercise. Shuhua recently rolled out a treadmill powered by Huawei’s Harmony OS. The company has developed integrated fitness solutions for six major fitness scenarios, namely home fitness, commercial fitness, nationwide fitness, physical training, elderly fitness, and campus sports. It is transforming from an equipment manufacturer to an integrated fitness solutions provider, which we think will enhance transactions per customer and client stickiness.

Valuation and recommendation

We maintain our 2021 and 2022 earnings forecasts. The stock is trading at 44x 2022e P/E. We maintain OUTPERFORM and our TP of Rmb25.00, implying 55x 2022e P/E, offering 24% upside.

Risks

Sharp increase in raw material prices; intensifying competition.