1-3Q22 performance is lower than we expected.
The company announced 1-3Q22 results: income 2.098 billion yuan, year-on-year-16.1%; homing net loss 38.69 million yuan, corresponding to a loss of 0.1 yuan per share, down 114.8% from the same period last year; deducting non-homing net loss of 57.81 million yuan (mainly adjusted for government subsidies, investment income and equity incentive amortization expenses), down 128.6% from the same period last year, lower than we expected, mainly affected by repeated epidemic situation and weak demand in the industry as a whole. From a quarterly point of view, Q1/Q2/Q3 revenue is-5.3%, respectively, compared with the same period last year. The year-on-year net profit is-71.5%, 104.1% and 179.8%, respectively. The loss is further expanded, mainly due to increased discounts and increased preparation for falling inventory prices, which has led to a significant decline in profitability.
Trend of development
1. The repeated epidemic situation is a drag on revenue performance, and the proportion of non-Tmall platforms continues to increase. 1-3Q22 revenue fell 16.1% year-on-year, under pressure as a whole, mainly due to the repeated impact of the epidemic on the logistics supply chain and weak online retail demand. ① sub-business point of view, 1-3Q22 e-commerce retail business revenue of 1.912 billion yuan, down 17.3%; brand marketing operation service revenue of 70 million yuan, down 48.1%. From the perspective of ② sub-platform, 1-3Q22 achieved 1.796 billion yuan in revenue on Tmall's domestic platform, down 17.8%; Tmall's international platform realized 65 million yuan in revenue, down 38.1%; and non-Tmall platforms (including Douyin, Pinduoduo, Lazada, Shopee, etc.) achieved a total revenue of 238 million yuan, an increase of 12.9%, accounting for an increase of 2.9ppt to 11% over the same period last year. The company continues to expand the emerging e-commerce platform, 1-3Q22 added Kuaishou Technology and other platform stores 12, to grasp the trend of online traffic decentralization and platform diversification.
2, affected by the increase of discounts, profitability is under pressure. 1-3Q22 overall gross profit margin fell 13.7ppt to 28.9% year-on-year, mainly due to weak demand, the company increased discounts, including e-commerce retail business gross profit margin fell 5.6ppt to 29.6% year-on-year, brand marketing operation service gross profit margin decreased 33.0ppt to 49.2%. On the expense side, the 1-3Q22 sales expense rate increased to 24.3% compared with the same period last year, while the management expense rate increased to 4.7% compared with the same period last year, mainly due to the increase in the provision for price decline and the one-time amortization of equity incentive charges. Under the combined impact, the 1-3Q22 homing net profit margin fell 12.3ppt to-1.8 per cent compared with the same period last year.
3. Pay attention to the process of follow-up brand, category expansion and channel expansion. The company continues to promote brand cooperation and category expansion, and in the third quarter of this year, it successively opened flagship stores in cooperation with Yue Shi Fengyin, Fei Selan and other beauty make-up brands to consolidate its dominant position in the field of cosmetics; at the same time, the company strengthened the layout of new areas such as personal care, mother and child, introduced new brands and new categories such as bamboo salt and Cloter, and deepened its strategic cooperation with Koty Group to enable the growth of its Adidas brand. Pay attention to the follow-up progress of the company in multi-platform, product category and brand expansion.
Profit forecast and valuation
Taking into account the impact of the epidemic on residents' consumption, the earnings forecast per share of 2022Compact 23 was lowered by 48% of earnings per share by 35% to 0.30,0.65 yuan. The current share price corresponds to a price-to-earnings ratio of 17 times 2023. Maintain an outperform industry rating and lower the target price by 25% to 13 yuan, corresponding to a price-to-earnings ratio of 20 times 2023, with 16% upside space.
Risk.
Brand customer loss risk; high dependence on a single e-commerce channel; intensified competition in the industry; new brand expansion is not as expected.