Performance review
1H22 performance fell short of our expectations
The company's 1H22 revenue increased 14% year on year to 4.6 billion yuan, and Guimu's net profit increased 47% year on year to 0.2 billion yuan, lower than our expectations, mainly due to the impact of the domestic epidemic on outdoor business sales.
The epidemic has dragged down the sales performance of the main outdoor business, and the franchise/joint ventures and group major customer businesses have grown well. Revenue from 1H22's main outdoor business increased 12% year over year to 466 million yuan. By brand: Pathfinder's main brand, Discovery Expedition, TOREADKIDS, and TOREAD.X, revenue was 380 million yuan, 40 million yuan, 0.2 billion yuan, and 6.33 million yuan respectively, up +19%/-13%/-21%/+25% year-on-year respectively. By channel: 1) Offline business revenue increased 20% year over year to 340 million yuan. Among them, direct management, franchise and joint venture channels, group major customer business, and others earned 0.9/21/0.4 billion yuan respectively, -30%/+67%/+47% year-on-year respectively. The 1H22 company's main stores closed 1 to 785, of which 10 direct-run stores closed to 170. The average store efficiency declined 19% year over year, and the net opening of 9 franchisees reached 615. 2) Online business revenue fell 9% year over year to 110 million yuan, mainly due to the impact of the Tianjin epidemic on online delivery.
As a result of deepening sales discounts, gross margin fell 4.8ppt year on year, and the expense rate was well controlled. 1H22 gross margin fell 4.8ppt to 42.7% year over year, mainly due to the impact of the pandemic on terminal sales discounts and the company's initiative to clean up inventory due to the imminent termination of cooperation with the Discovery Expedition brand. Thanks to the company's active cost control, sales and management expenses fell 2.4 ppt to 41.0% year-on-year. Asset and credit impairment losses increased by 410,000 yuan (revenue of 2.85 million yuan last year), and net investment income increased profits by 23 million yuan. 1H22 operating profit margin increased 0.7ppt to 4.4% year over year.
Inventory turnover has accelerated, and the pandemic has led to a net outflow of cash from operating activities. Total inventory fell 6% year over year to 260 million yuan, and the number of inventory turnaround days for outdoor products decreased by 90 days to 351 days year over year. There was a net outflow of 60 million yuan from operating activities, compared to an inflow of 5.16 million yuan in the same period last year. Mainly due to the impact of the epidemic, customer refunds decreased and purchase payments increased.
Development trends
In terms of outdoor business, the company stated that it will stick to professionalism, technology and fashion as product guidance, increase R&D and innovation efforts, and at the same time actively develop efficient stores, close inefficient stores, deepen brand marketing layout, and effectively reach consumers. In terms of the chip business, the company closely integrated domestic and foreign market needs, continuously refined and expanded its product line, and completed the development and streaming of some new direct display and backlight driver chip products. Management expects to supply customers in the third quarter of this year, which is expected to increase its revenue contribution to the company.
Profit forecasting and valuation
Considering the adverse impact of the pandemic on sales, the 2022 EPS forecast was lowered by 8% to 0.08 yuan, and the 2023 EPS forecast was maintained at 0.18 yuan. The current stock price corresponds to 5.2/3.5 times the 2022/23 P/S, maintaining a neutral rating. The valuation was switched to 2023, and the target price was raised by 9% to 9.01 yuan, corresponding to 3.9 times the 2023 P/S. There is 9% room for improvement compared to the current stock price.
risks
The epidemic has fluctuated repeatedly, the terminal retail environment has fallen short of expectations, and raw material prices have risen.