The results in the first half of fiscal year 2022 were slightly higher than we expected.
The company announced 1HFY22 results: revenue was 15.6 billion yuan, down 1.2% from the same period last year and 8.2% compared with 1HFY20; net profit from home was 1.43 billion yuan, up 9.3% from the same period last year and 2.7% lower than 1HFY20, slightly higher than we expected. Gross profit margin increased due to good control of sales discounts. The company announced that it plans to pay an interim ordinary dividend of 0.13 yuan per share, corresponding to a dividend payout rate of 56.3%.
Big store strategy and global consumer touch to continue to promote. 1HFY22's revenue from the two major brands Nike and adidas was 13.5 billion yuan, down 2.4%, 9.2% lower than 1HFY20, accounting for 86.8% of the total revenue. From a sub-channel point of view, direct revenue fell 2.3% year-on-year, while wholesale revenue increased 3.7% year-on-year. The company continues to optimize retail channels, with 221to 7785 1HFY22 clearance stores. However, thanks to the continued promotion of the big store strategy, the gross sales area of stores has increased by 4.9% compared with the same period last year. We estimate that the proportion of stores with an area of more than 300 square meters in direct stores has increased to 10.8% in 1HFY22 in the past three years. The flat efficiency of large stores over 350 square meters is 1.5 times that of small stores. The company continues to promote global consumer access, as of 1HFY22, the cumulative number of registered members increased by 42.6% year-on-year to 47.2 million, 2QFY22 member sales contributed 95.6%, of which veteran members contributed nearly 70%.
Both gross profit margin and net profit margin have increased. 1HFY22's gross profit margin increased to 44.5% year-on-year, mainly due to strict discount control and brand cooperation support. The rate of sales and management expenses increased to 33.2% year-on-year, mainly due to the reduction of rent and social security fees in the same period last year, as well as the increase in rent and labor costs caused by the increase in the area of direct stores. Other income of 310 million yuan (mainly government subsidies) increased profits, and the operating profit margin was + 1.1ppt to 13.2% compared with the same period last year.
The healthy inventory structure is expected to offset the shortage in the supply chain. 1HFY22 inventory increased by 26.1% to 7.9 billion yuan compared with the beginning of the year, mainly due to repeated outbreaks in July-August and the company's initiative to adjust to possible future supply shortages. About 70% of the inventory is 6-month-old new products, and 70% of the products are mainly winter products and footwear. The cash cycle increased by 17 days to 155 days, mainly due to an increase in inventory turnover days compared with the same period last year. Operating cash flow increased by 29.8% to 2.57 billion yuan compared with the same period last year.
Development trend
Management said that passenger flow and sales recovered from September to October, and the flow performance so far in October was close to the level of the same period in 2019, but the supply shortage of co-brands may continue to 4Q21-1Q22.
Profit forecast and valuation
Taking into account the current retail environment and the uncertainty of the main brand supply chain, we downgrade the FY22/23 EPS forecast of 3.0% FY22e/23e 7.8% to 0.48 pm 0.57 yuan, and the current share price corresponds to 14 times of 17max Pmax E.
Maintain an industry rating that outperforms. In view of the increased uncertainty of the overall retail environment caused by the repeated outbreaks, the company lowered its target price by 10% to HK $12.53, corresponding to 19 times FY23 Pamp E, with 32% upside space.
Risk
The epidemic continued repeatedly, the terminal retail environment was not as expected, and the sales of the main brands slowed down.