Incident Overview

In 2022, the company's revenue/net profit attributable to the mother/net profit after deducting non-attributable profit/operating cash flow was 23.41/0.15/0.03/107 million yuan respectively, down 0.06%/80%/95%/-4024% from the previous year; 22Q4 company revenue/net profit attributable to the mother was 674/-031 million yuan, down 6.91% /loss from the previous year. The higher operating cash flow than net profit was mainly due to the increase in operating payable items and the increase in depreciation of right-of-use assets. A cash dividend of $0.3 was distributed for every 10 shares in '22, with a dividend rate of 0.9%.

Analytical judgment:

Zero Sense shirt sales exceeded 330,000 pieces, and the operation of the Red Bean menswear applet reached GMV3.1 billion. The company's garment/printing/dyeing/fabric/other business revenue in '22 was 20.41/0.64/131/078 billion respectively, up 4.57%/-42.77%/18.55%/28.34% over the previous year, and the clothing business accounted for 88.19% of revenue. (1) By brand, HoDo menswear and OEM processed clothing achieved revenue of 1,300/741 million yuan respectively, an increase of -15.05%/75.76% over the previous year. (2) Looking at online and offline, online/direct management/franchise revenue was 530/408/307 million yuan respectively, an increase of 9.87%/54.00%/-46.89% over the previous year; the increase in direct management was mainly due to the year-on-year increase in store efficiency, and the decline in franchise was mainly due to store closures compounded by a decline in single store shipments. By the end of '22, the company had 922 stores (399/523 direct franchises), 79 net stores closed in '22 (7/72 direct management/franchise stores closed, an increase of 353 house/-449 stores over the previous year), and 25 direct stores joined. According to this estimate, the efficiency of direct-run stores in '22 was 1,022,600 yuan, an increase of 57% over the previous year; single franchise stores shipped 587 million yuan, a year-on-year decrease of 40%.

Online gross margin increased dramatically, and the increase in the cost of sales ratio led to a decline in net interest rates. (1) The increase in gross margin came from HoDo menswear, while the increase in men's gross margin came from the launch of popular products such as zero-feeling shirts: the company's gross profit margin in '22 was 34.07%, up 3.1 PCT from the previous year. Among them, the gross margin of the clothes/printing/dyeing/fabric/other business was 35.92%/7.45%/18.55%/28.34%, an increase of 3.74/-16.47/-5.4/-2.24PCT; the gross margin of HoDo menswear and OEM processed clothing was 50.87%/9.70%, respectively, an increase over the previous year 12.77/-0.99PCT; by channel, the gross margin of online/direct management/franchise/wholesale and other channels was 48.50%/58.86%/25.71%/19.47%, up 7.42/2.16/-2.39/-1.70PCT from the previous year. 22Q4 gross margin was 33.83%, an increase of 5.93PCT over the previous year. (2) The decline in net interest rate is mainly due to the company's high-end transformation and upgrading advertising and increased consulting expenses: in '22, the company's net interest rate was 0.64%, down 2.65 PCT from the previous year; in 22Q4, the company's net interest rate was -4.6%, down 4.6PCT from the previous year. Looking at the expense ratio, the 22-year sales/management/R&D/finance expense ratio was 26.53%/8.29%/0.9%/0.6%, respectively; the year-on-year increase of 8.05/-0.51/0.34/-0.21PCT; the 22Q4 sales/management/R&D/finance expense ratio was 29.82%/9.05%/0.89%/0.45%, an increase of 8.69/0.49/0.2/-1.49PCT. Other income in '22 was $14 million, an increase of 75% over the previous year; asset impairment losses were $0.08 billion, a year-on-year decrease of 33.33%, mainly due to a reduction in impairment losses accrued after inventory processing, and credit impairment losses of $14 million, an increase of 75% over the previous year. 22Q4 Other income was 0.2 billion yuan, down 50% from the previous year, asset impairment loss was -0.05 billion yuan, down 37.5% year on year, and credit impairment loss was 0.07 billion yuan, up 600% year on year.

Inventory value increased, and the share of inventory increased over 1-2 years. Inventory at the end of '22 was 152 million yuan, an increase of 334.04% over the previous year. The number of inventory turnover days was 31 days, a decrease of 3 days from the previous year. Accounts receivable amounted to 700 million yuan, an increase of 28.7% over the previous year. The number of accounts receivable turnover days was 97 days, an increase of 26 days over the previous year. Looking at the inventory structure, inventories within 6 months/6-12 months/12-24 months/24-36 months/36 months/36 months or more accounted for 78.8%/6.0%/14.8%/0.4%/0.1%, a year-on-year decrease of 3.8/2.1/11.7/3.2/2.6 PCT.

Investment advice

Since the company collaborated with Junzhi Consulting, it has positioned classic and comfortable menswear, creating popular models, 0 new and comfortable models, suitable shirts for the first time, and it is expected that other items will be launched one after another in the future. In February '23, the company announced that it plans to increase not more than 100 million yuan 11. 8. It is used for experiential store upgrading, e-commerce center construction, and R&D center construction projects. We believe that after the company's investment period of 21 and 22 years, it is expected that the transformation will begin in '23. Considering that revenue is in line with market expectations, net profit is lower than market expectations due to the increase in the sales expense ratio, maintaining the previous revenue forecast. The 23/24 revenue forecast was 30.556 billion yuan, the 25-year revenue forecast was increased by 4,556 million yuan, maintained the 23/24 net profit forecast of 102/153 million yuan, and the 25-year net profit forecast increased by 168 million yuan, corresponding to the 23/24 EPS of 0.04/0.07, an increase of 25-year EPS of 0.09 yuan, closing on April 20, 2023 The price of 3.38 yuan corresponds to PE 76/51/39X, respectively, maintaining the “increase in holdings” rating.

Risk warning

There are risks such as the risk of recurrence of the epidemic; the risk of restoration of offline store efficiency; systemic risks; planned increases have not yet been completed, and there are risks such as uncertainty.