FY22 annual results meet profit warning
The company's FY22 (April 2021 to March 2022) revenue fell 3 per cent year-on-year to 1.9 billion yuan, while net profit fell 19.7 per cent year-on-year to a loss of 1.7 billion yuan, in line with the profit warning.
The epidemic affected Kappa brand sales, and the pipeline structure was continuously optimized. 2HFY22 Kappa outfit income also fell 12% to 910 million yuan, mainly due to the decline in passenger flow caused by the epidemic. Among them, the sales revenue of offline and online channels decreased by 9.0% and 23.0% respectively, and the corresponding revenue accounted for 69% and 16% respectively. Revenue from the children's clothing business also rose 38 per cent to 100 million yuan, accounting for 10 per cent of the group's sales. The number of all-channel flow of FY22 decreased compared with the same period last year, of which the proportion of shopping mall flow increased by 2ppt to 30%, and that of Olai channel increased by 1ppt to 17%. By the end of March, the number of Kappa dress stores had reached 1183, up from 34 at the end of September 2021, of which shopping malls accounted for 31%, unchanged from the previous month.
The loss on investment income is a drag on performance. By the end of March 2022, the company held a total of 8.6 billion yuan in investment and cash, 65% of which were invested in financial assets. The investment division of 2HFY22 suffered a loss of 810 million yuan (an income of 830 million yuan in the same period last year), which continued to deepen on the basis of a loss of 660 million yuan in 1HFY22, including a loss of 1.07 billion yuan in the fair value of financial assets, mainly due to a major adjustment in the share prices of the company's stock funds and listed stocks in PE funds during the year.
Taking into account the impact of the epidemic, the provision for special impairment of inventory is made, and the operating profit of the clothing division is lost. Due to the uncertainty of the domestic epidemic, the company set aside 100 million yuan for inventory impairment loss during the year (30 million yuan for the same period last year). Before deducting the inventory impairment provision, the gross profit margin of FY22 was also reduced to 64%, mainly due to the increase of retail discounts due to promotional activities in response to the epidemic. The rate of sales and management expenses also increased to 72%, mainly due to 1) the company increased investment in the brand market, human resources and sales channels during the year; 2) the social security deduction for the same period last year was cancelled this year. Operating margins also fell by 196ppt to-91 per cent (excluding investment segments, operating margins also fell by 14ppt to-11 per cent). Net profit margin also fell to-91 per cent by 183ppt. By the end of March, the company's net inventory value increased by 8% to 400 million yuan, inventory turnover days increased by 9 days to 203days, and cash cycle decreased from 11 days to 140days.
Trend of development
Management said that as the epidemic improved, sales gradually recovered from April to June, with sales so far returning to the level of the same period last year, and recent weekend sales were slightly higher than the same period last year.
Profit forecast and valuation
Taking into account the impact of the epidemic on terminal sales and discounts, the annual FY23/24 EPS forecast is lowered by 4% per cent to 0.03 per cent, and the current share price corresponds to 5 times the annual FY23/24 FY23/24 E, maintaining an industry rating that outperforms.
We maintain the apparel business valuation of 8 times FY23 pact E and give the company's multi-business model a 71% valuation discount. Taken together, we cut our target price based on segment plus total valuation by 6% to HK $0.53, with 18% upside room.
Risk
The epidemic continues repeatedly, the terminal retail environment is not as expected, the reform is not as expected, and the investment income fluctuates.