Key points of investment:

The company released its 2022 annual report and the first quarter report of 2023. The overall performance was in line with expectations. 1) The retail environment was very turbulent in '22, and performance was temporarily under pressure. Revenue reached 1.14 billion yuan in '22, down 5.9% from the previous year, and Guimu's net profit was 170 million yuan, down 14.8% year on year, after deducting non-net profit of 140 million yuan, down 21.4% year on year. Deducting non-net profit is in line with expectations. Non-recurring profit and loss mainly includes government subsidies and investment income. 22Q4 achieved revenue of 4.2 billion yuan, a year-on-year decrease of 10.8%, and the net profit of the mother was 0.6 billion yuan, a decrease of 24.0% year-on-year, mainly due to the interruption of e-commerce logistics and the temporary closure of offline stores. 2) The 23Q1 performance was in line with expectations, improving month-on-month since March. 23Q1 achieved revenue of 290 million yuan, down 0.3% from the previous year. The slight decline in revenue was due to the fact that logistics did not resume at the beginning of Q1 and during the Spring Festival. There were returns from online channels, and there were gradual recovery from offline, a significant improvement from March to March; the net profit achieved was 0.6 billion yuan, an increase of 24.1% over the previous year, mainly affected by non-recurring profits and losses such as government subsidies, after deducting net profit from non-return mothers of 0.4 billion yuan, a year-on-year decrease of 2.7%. 3) The proposed cash dividend is 0.36 yuan/share (tax included).

The share of online channels is increasing, gross margin continues to be optimized, offline passenger flow is recovering at an accelerated pace, and stores are expected to resume growth. Looking at the spin-off channel, online channel revenue in 2022 was 80 billion yuan, up 1.4% year on year, and the share increased to 70%, and gross margin increased 0.9 pct to 59.8% year on year. The total revenue of offline channels was 340 million yuan. Among them, offline direct operation/franchise revenue was 22/120 million yuan respectively, down 17.5%/22.7% from the previous year. The revenue share was 19%/11% respectively, and gross margin fell 0.9 pct/year over year and increased 0.2 pct to 63.0%/53.4%. In '22, directly-managed stores closed 21 to 169 stores, with an annual average of about 22,000 yuan/square meter, and 28 franchised stores closed to 386, with a total of 555 stores at the end of the year. At present, clothing terminal consumption is gradually recovering, offline passenger flow has clearly recovered, franchisee confidence has increased, and offline channel sales performance is expected to recover at an accelerated pace.

Gross margin remains high, taking into account falling inventory prices in '22, and is expected to go to power lightly in '23. The consolidated gross margin increased 0.5pct to 59.7% year-on-year in 2022, mainly due to product upgrades and terminal tag price increases. The gross margin for 23Q1 was 61.4%, which means that the Q1 e-commerce promotion was lower than the annual level. The sales/management expenses ratio increased by 1.5pct/1.0pct to 32.8%/7.6% respectively in 2022. The increase in sales expenses was mainly due to the company's increased publicity and promotion efforts to improve its brand image and promote online sales. The increase in management expenses was mainly affected by listing expenses. The increase in management expenses was mainly affected by listing expenses. The net interest rate returned to the mother in '22 fell 1.5pct to 14.5% year-on-year.

The number of inventory turnover days in '22 was about 325 days, an increase over the previous year. Due to prudential considerations, inventory price drop losses and contract performance cost impairment losses totaled 33.29 million yuan throughout the year. The calculation was large, and it is expected that they will go to power lightly in '23.

Jiaman Apparel is a rising star of domestic high-end children's clothing brands. It has built a pyramid brand matrix to form a strong complement. Its Haggis and Ibushi brands are in a period of rapid growth. E-commerce accounts for the leading share of the industry, and maintains a “buy” rating. The growth of the domestic children's clothing industry is on par with the movement. As one of the few middle and high-end children's clothing brand groups in China, the company has built a pyramid brand matrix with a layout of the middle, middle and high end, and has taken advantage of the growth dividend of the e-commerce channel to drive performance growth, forward-looking channel layout, and seize the growth dividends of e-commerce channels. Considering the company's channel expansion plan, maintaining the original 23-24 profit forecast and adding a 25-year profit forecast, it is estimated that 23-25 will achieve net profit of 2.0/26/32 billion yuan, corresponding to PE 13/10/8 times, maintaining the “buy” rating.

Risk warning: The birth rate continues to decline; industry competition intensifies; online traffic dividends decline; brand licensing model risks.