Key points of investment

The company released its 2022 annual report, and its operating income remained basically the same throughout the year. In 2022, the company achieved operating income/net profit/net profit after deducting non-net profit of 23.41/0.15/0.03 million, compared with -0.06%/-80.46%/-95.39%, respectively; 2022Q4 achieved operating income of 674 million yuan in a single quarter, compared with -6.83% year on year, and net profit loss attributable to the mother of 0.31/34 million yuan.

Looking at each channel, the revenue performance of direct and wholesale businesses was relatively good, and franchising was greatly affected by the epidemic. ① In 2022, the company's online/direct-management/franchise/wholesale and others achieved revenue of 5.30/4.08/307/1,069 billion yuan respectively, compared with +9.87%/+54.00%/-46.89%/+12.69%, respectively. The decline in franchise channels was mainly due to the move of franchised affiliated stores to direct stores in 2022. Among them, the net change in direct-managed stores/franchisee stores in 2022 was -7/-72 to 399/523, respectively, compared to the end of 2021. ② The company's online/direct/franchise/wholesale and other gross margins in 2022 were 48.50%/58.86%/25.71%/19.47%, respectively, +7.42pct/+2.16pct/-2.39pct/-1.70pct, respectively. The increase in gross margin of online and direct sales is mainly due to companies actively promoting high gross margin products such as “0” feeling shirts.

Categories such as suits and shirts are growing rapidly. By category, in 2022, the company (by product) achieved revenue of suits/shirts/sweaters/printing/dyeing/T-shirt/loungewear/pants/other/ sportswear/ fabric of 2.11/3.74/1.47/5.59/3.42/0.78/0.78/3.04/131 billion yuan respectively, +36.05%/+26.18%/-14.33%/-42.77%/-6.73%/-11.74%/-11.74%/-20.70%/+15.85 percent %/ +16.50% The shirt category has risen a lot mainly because the single red bean “0” feel comfortable shirt is popular.

Gross profit margin increased throughout the year, and proper fee control was compounded by the impact of government subsidies, and the net interest rate of return to the mother increased. ① In 2022, the company achieved gross margins, net interest rates attributable to the mother, net interest rates of 34.07%/0.64%/0.13%, respectively +3.13pct/-2.64pct/-2.64pct/-2.78pct, respectively. ② The company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio in 2022 were 26.52%/8.28%/0.92%/0.61%, respectively, compared to +8.04pct/-0.52pct/+0.36pct/-0.19pct, respectively. The increase in the sales expense ratio is mainly due to the increase in advertising expenses after the company's transformation and upgrading, and the increase in employee remuneration and rent amortization in direct-managed stores; the increase in the R&D expenses ratio is mainly due to the increase in the company's investment in research and development of functional clothing fabrics, process patterns, etc.

The company's inventory size at the end of 2022 declined compared to the end of 22Q3. In 2022, the company's accounts receivable book value/inventory book value/accounts payable book value was 700/1.52/628 million yuan respectively, +28.70%/+34.04%/+65.64%, respectively -0.21%/-31.95%/+17.12%, respectively; accounts receivable turnover days/inventory turnover days/accounts payable turnover days were 96/31/117 days, respectively +26/+5/+35 days, respectively -5/11/+5 days, respectively -5/11/+5 days, respectively.

Profit forecast: By focusing on high-quality products, high-end brand transformation, and implementing an omni-channel layout and digital intelligence transformation integrating online and offline, the company's revenue scale remained stable in 2022. As the consumption environment improved after the epidemic, we adjusted the company's net profit of 2023-2025 to 1.10/153/197 million yuan respectively, with year-on-year changes of +628.3%/+39.6%/+28.5%, respectively. Corresponding to the closing price on April 24, 2023, PE was 69.2/49.5/38.5 times, respectively, maintaining the “increase” rating.

Risk warning: The recovery of the consumer environment fell short of expectations, and the epidemic has repeatedly affected terminal retail