Key points of investment
The company released its report for the third quarter of 2022: steady revenue growth, declining gross margin, and rising expense ratios dragged down net profit.
Revenue for the first three quarters of 2022 was 748 million yuan/yoy +13.69%, and net profit of the mother was 11 million yuan/yoy -61.72%.
On a quarterly basis, 22Q1/Q2/Q3 revenue was +14.42%/+12.86%/+13.89%, respectively, and net profit of the mother was -25.48%/+297.25%/-162.59%, respectively. The revenue side maintained steady growth in Q3, and the year-on-year decline in net profit growth was mainly due to Q3 gross margin of -6.28pct to 41.10% yoy and the period expense ratio +2.20pct to 47.46% yoy.
By brand: Promotion clean-up efforts are strong, driving revenue growth. 22H1 Pathfinder /DE/Kids/Toread.x achieved revenue of 3.75/0.43/0.22/0.06 billion yuan, with a year-on-year ratio of +18.55%/-13.23%/-21.02%/+25.42%, accounting for 81.65%/9.25%/4.73%/1.29%. The growth rate of Pathfinder's main brand was high, mainly due to the company's increased discounting efforts and promotional activities to drive product sales volume under the pressure of the epidemic. The company terminated the cooperation agreement with the DX brand in May '22, and sales of the DE brand will be terminated at the end of '22. DE products are being cleared at an accelerated pace. We judge that this will also drive revenue growth.
Sub-channels: Online and direct channels have been greatly affected by the epidemic, and the franchise (joint venture) channel is developing better.
1) Divided online and offline, 22H1's online/direct/franchise/alliance/group major customer business and other revenue was 1.05/0.92/1.71/0.35/043 million yuan respectively, with a year-on-year ratio of -9.01%/-29.52%/+38.41% /no year-on-year data/ +46.67%, accounting for 22.6%/19.8%/36.8%/7.5%/9.3% respectively. 2) Divided by internal and external delays, 22H1 direct management/franchise (including joint ventures) revenue was -29.52%/+67.30% year-on-year. The number of direct-managed channel stores was 170, -17% year on year, net increase of -10 from the end of the year 21, and store efficiency was -15% year-on-year. Among them, mature stores that had been in business for 12 months or more had a year-on-year efficiency ratio of 19%, mainly impacted by the epidemic. There were 615 franchise (including joint ventures) channel stores, -8% year-on-year, a net increase of +9 from the end of '21, and store efficiency improved. The company continues to build channels and close stores with inefficient operation, and store efficiency is expected to improve under the meticulous management of stores.
Clearing up inventory and increasing discounts have led to a decline in gross margin, and it has also been shown that Beijing Semiconductor can increase the management cost ratio. 1) Gross profit margin: The gross margin for the first three quarters of '22 was -5.32pct to 42.40% year-on-year. Looking at 22Q1/Q2/Q3 gross margin on a quarterly basis, the gross margin was 45.76%/41.06%/41.10%, respectively. The decline in gross margin was mainly due to active clearance of backlog inventory and increased product discounts. 2) Expense rate: The cost rate for the first three quarters of '22 was -1.04 pct to 45.17% year-on-year. Among them, the sales/management/R&D/financial expenses ratio was -2.71/+1.87/-0.18/-0.02pct to 31.19%/10.52%/3.97%/-0.50%, respectively. The increase in management expenses was mainly due to Beijing Xinneng. 3) Net interest rate: Investment income and asset disposal income increased by 24 million yuan to mitigate the impact of the decline in gross margin. The net interest rate for the first three quarters of '22 was 1.52% /yoy-2.98pct. 4) Inventory: As of the end of 22Q3, inventory was 410 million yuan/yoy -10.94%. The number of inventory turnover days was shortened by 75 to 215 days over the same period last year. The reduction in inventory and the increase in turnover rate benefited from the company's inventory clean-up. 5) Cash flow: Net cash flow from operating activities in the first three quarters of '22 was 145 million yuan/yoy -44.24%. As of the end of 22Q3, the account was 532 million yuan, and there was plenty of cash.
Profit forecast and investment rating: The company is a leader in outdoor products. It acquired 60% of Beijing Xinneng's shares in '21 and entered the chip circuit. Looking at the outdoor business, benefiting from the industry's recovery in '21 and the sharp increase in performance, increased discounts under the influence of the pandemic since '22 have put pressure on profitability and net profit. In September, the company official announced that Liu Haoran was the brand ambassador, promoting brand rejuvenation and value upgrading. The 1:45 second pre-sale at the official Double Eleven Pathfinder flagship store surpassed the first day of last year. As the company's channel construction continues to advance, the number of stores increases year by year under the net store opening strategy, and store expansion is dominated by joint ventures, it is expected that steady growth will be achieved in the long term. Looking at the chip business, 22H1 achieved revenue of 6.24 million yuan and a loss of 2.43 million yuan. Due to delays in the pace of chip business commissioning and the limited contribution of Q3 revenue, chip customers developed smoothly and is expected to provide a new driving force for future performance growth.
We lowered the net profit forecast for 22-23 from 0.76/147 million yuan to 0.57/92 million yuan, added a 24-year profit forecast of 123 million yuan, EPS was 0.06/0.10/0.14 yuan/share, and the corresponding PE was 114/71/53X. The valuation is high and the “neutral” rating is maintained.
Risk warning: The epidemic has repeatedly affected consumption, and the development of the chip business fell short of expectations.