Incident Overview

In 2022, the company's revenue/net profit attributable to non-attributable profit/operating cash flow was 11.43/1.66/1.37/126 million yuan respectively, down 5.87%/14.75%/21.35%/38.46%. Net profit after deducting net profit was lower than net profit due to government subsidies ($16 million); net profit/net profit after adding asset impairment losses was 1.99/170 million yuan, down 7%/13% from the previous year; operating cash flow was lower than net profit due to income from changes in fair value and inventory growth. A cash dividend of 3.6 yuan was distributed for every 10 shares in '22, with a dividend rate of 1.5%.

The 2023Q1 company's revenue/net profit attributable to the mother/net profit after deducting non-return to the mother was $294/0.64/45 million respectively, up 0%/24%/-3% year on year. The revenue growth was better than that of the 23 spring and summer order meetings (order amount of $155 million, a decrease of 27.62%); net profit growth was better than revenue mainly due to the company's receipt of listing subsidies and increased corporate support funds (other income of $119 million, an increase of 375% over the previous year).

Analytical judgment:

Offline has been affected by the epidemic, and online has maintained steady growth. (1) Looking at each channel, offline direct management/franchise/online direct sales were 2.18/122/803 million yuan respectively in '22, a year-on-year decrease of 17.50%/22.69%/-1.37%, and the share of online revenue reached 70%. The number of direct-managed/franchise stores in '22 was 169/386 respectively, with a net closing of 21/28 compared to the previous year, a decrease of 6%/7% over the previous year. It is estimated that the efficiency of direct-run store/single franchise store shipments (129/32 million yuan) decreased 12%/17% year-on-year. The single store area was 58.5/53.5 square meters, and the efficiency of direct management/franchise was 22/60,000 yuan/㎡. The company opened 11 new directly-managed companies, including 3 free foot players, 3 Bebelux3, and Haggis 5, with an average area of 69 square meters. In the company's online sales, e-commerce affiliate platforms/e-commerce service platforms accounted for 45.9%/54.1% of revenue, a year-on-year decrease of 39.4/-25.0 PCT. (2) By region, excluding e-commerce revenue, the revenue of Northeast China/North China/East China/Northwest/Southwest China/Southwest China/South China in '22 was 0.20/1.64/1.07/0.18/0.13/0.13/019 billion yuan respectively, down 17%/19%/15%/24%/31%/33% in sales revenue in the southwest and south-central regions, where the company's main sales regions were relatively low. (3) Sales/unit price decreased 10.5%/-5% year-on-year respectively in '22.

Gross margin was basically flat, and the decline in net interest rates was mainly due to rising cost rates and an increase in the share of asset impairment losses. (1) The company's gross margin in '22 was 59.74%, an increase of 0.48PCT over the previous year, mainly due to a slight increase in gross margin of online business sales, which accounted for a relatively large share of online business sales: the gross margin of online/direct management/franchise in '22 was 59.83%/62.95%/53.42%, respectively, an increase of 0.88/-0.87/0.22PCT over the previous year. The company's gross margin in 23Q1 was 61.56%, a year-on-year decrease of 0.47PCT. (2) The net interest rate in '22 was 14.52%, a year-on-year decrease of 1.54 PCT; the net interest rate for 23Q1 was 21.77%, an increase of 4.14 PCT over the previous year. Looking at the expense ratio, the sales/management/finance expense ratio in '22 was 32.7%/7.6%/-0.1%, respectively, up 1.4/1/0PCT over the previous year. Sales expenses were mainly due to the increase in online promotion expenses, and management expenses were mainly due to the increase in intermediary fees. The 23Q1 sales/management/finance expense ratio was 32.3%/6.8%/-0.3%, down 0.9/-0.7/0.3 PCT from the previous year. Government subsidies in '22 were $16 million, an increase of 41% over the previous year. Asset impairment loss/revenue in '22 was 2.91%, up 1.23 PCT year over year, and other income/revenue increased 0.5 PCT year over year. 23Q1 Other income/revenue increased 5.11 PCT year over year, and investment income/revenue increased 0.34 PCT year over year. (3) The subsidiaries, Tianjin Jiaman (Shuihe), Tianjin Jiashi (Quash), and Ningbo Jiaxun (purchasing company), achieved revenue of 285/5.62/525 million yuan, net profit of 0.25/-0.17/191 million yuan, an increase of 2%/-158%/64% over the previous year, with a net interest rate of 8.7%/-3.0%/36.3%.

Inventory is high. Inventory at the end of '22 was $499 million, an increase of 17.7% over the previous year, inventory/revenue was 39.3%, inventory price reduction preparation/inventory was 12.5%; the number of inventory turnover days was 325 days, an increase of 62 days over the previous year. Accounts receivable Accounts receivable amounted to $37 million, a decrease of 0.22% over the previous year. The number of receivable turnaround days was 11.5 days, a decrease of 4.9 days over the previous year. The number of inventory turnover days in 23Q1 was 339 days, an increase of 14 days over the previous month, and the number of accounts receivable turnover days was 9.3 days, a decrease of 2.2 days over the previous month.

Investment advice

We analyzed that (1) there is still room for the company to open offline stores. Looking at the two authorized brands alone, there is 500-600 single-brand stores for high-end brands, and there is still room for the company to double in the future; (2) Currently, the company's store efficiency is around 1.1 million yuan/year, and there is still room for improvement in the future as the single store area expands, there is still room for improvement; (3) as the growth rate and share of high-margin authorized brands increase further, there is still room for improvement in the company's gross margin and net profit margin. Maintaining the previous profit forecast, the 23/24 revenue forecast was 1,553/1,571 billion yuan, the 25-year revenue was 1,804 million yuan, the net profit forecast for 23/24 was 19/23 million yuan, the net profit forecast for the additional 25 years was 280 million yuan, corresponding to the 23/24 EPS of 1.80/2.17 yuan, the increase of 25 EPS of 2.55 yuan, the closing price of 23.93 yuan on April 21, 2023 corresponding to the 23/24/25 PE 13/11/9 times, maintenance “Buy” rating.

Risk warning

Uncertainty about the development of the epidemic, risks that store opening progress is lower than expected, and systemic risks.