1H22 performance is lower than we expected.
The company reported 1H22 results: revenue of HK $4.373 billion,-5.5% compared with the same period last year, and net profit of HK $1.443 million. The lower-than-expected results were mainly due to 2Q22's global supply chain and logistics disruptions, resulting in a shortage of products, a weaker euro against the renminbi and persistently high raw material costs.
Cybex and Evenflo hit new highs, while gb and blue-chip businesses were affected by the epidemic. In terms of business, 1H22's core strategic brands accounted for 83.5 per cent of revenue, which was-3 per cent to HK $3.653 billion compared with the same period last year. Among them, Cybex benefited from the innovative product portfolio and the development of e-commerce channels, with revenue of + 0.9% to HK $1.632 billion, or + 10.1% in constant currency. The Evenflo brand has strong momentum and is growing rapidly in the North American market, with revenue from + 31.2% to HK $1.23 billion compared with the same period last year. Gb revenue was-34.6% to HK $792 million year-on-year, due to the suspension of offline stores and the disruption of online logistics and distribution. In addition, blue chip business accounted for 12.8% of revenue,-12.7% to HK $561 million compared with the same period last year, mainly due to the production activities affected by the epidemic and the decrease in orders due to the high inventory level of customers.
Under the pressure of the supply chain, profitability and operational efficiency have declined. 1H22's gross profit margin-3.9ppt to 38.5%, mainly due to the sharp rise in freight costs and the weakening exchange rate of the euro against the RMB. The management expense rate is relatively stable, from-0.1ppt to 9% compared with the same period last year, and the R & D expense rate from + 0.9ppt to 5.2% is due to the recovery of previous R & D projects. Sales expense rate year-on-year-1.8ppt to 23.9%, mainly due to revenue from the brand portfolio. In addition, plus interest income, income tax credits, etc., the company's net interest rate is-2.1ppt to 0.1%. In terms of operational efficiency, 1H22 inventory year-on-year + 0.15% to HK $2.091 billion, inventory turnover days from + 10 days to 150 days, mainly due to the extension of global logistics time and a substantial increase in inventory levels in transit. 1H22 accounts receivable turnover days are + 4 days to 51 days compared with the same period last year.
Trend of development
Looking forward to the second half of the year, with the normalization of domestic epidemic prevention and control, we expect that the supply of Cybex is expected to improve; gb can resume normal operation both online and offline, and gradually stabilize energy and profit through channel adjustment; Evenflo is expected to continue the growth of market share through the launch of new products.
Profit forecast and valuation
Taking into account the uncertainty of the COVID-19 epidemic, changes in the exchange rate of the euro and other factors, we have lowered the 2023 net profit by 83.1% to HK $0.54 billion. The current share price corresponds to a price-to-earnings ratio of 26 times earnings in 2022 and 7 times earnings in 2023. We maintained our neutral rating and lowered our target price by 25.4% to HK $0.88, corresponding to 30 times 2022 and 8 times 2023, which is 12.8% upside from the current share price.
Risk
The risk of repeated epidemic situation, the risk of declining birth rate, the fluctuation of raw material price and the risk of exchange rate fluctuation.