Core views:

The company's revenue and profits in 2022 were affected by the pandemic and were under short-term pressure. For the full year of 2022, the company achieved revenue of 2.34 billion yuan, a slight decrease of 0.06% over the previous year; the net profit returned to the mother was 0.2 billion yuan, a decrease of 80.5% over the previous year, mainly due to the increase in advertising expenses and consulting fees for the company's high-end transformation and upgrading.

The 2022Q4 company achieved revenue of 670 million yuan in a single quarter, a decrease of 6.8% over the previous year; it achieved net profit of 3.18 million yuan to the mother.

The main clothing business has been affected by the pandemic and is under pressure. The company's apparel and printing and dyeing business came under pressure throughout 2022. The garment/printing/dyeing/fabric/other business achieved revenue of 20.4/0.6/13/0.8 billion yuan respectively, a year-on-year change of +4.6%/-42.8%/+16.5%/-20.7%, and the garment business accounted for 87.2% of revenue. By channel, the company's online/direct-management/franchise revenue was 53/41/301 million yuan respectively, a year-on-year change of +9.9%/+54.0%/-46.9%. The sharp increase in direct-run menswear revenue was mainly due to the closure of 58 inefficient menswear stores, 25 franchises to direct management, and the opening of 26 new stores, but according to financial reports, direct-run stores and same-store revenue decreased 27.4% year-on-year.

High-end upgrades for menswear brands can be expected. In terms of menswear, the company clearly defined the new position of “classic and comfortable menswear”, and the brand potential continues to improve: the product side has increased independent research and development, deepened the segmentation of shirt categories, the annual sales volume of 0 Senso Comfort shirts exceeded 330,000 pieces, and the product system was continuously upgraded; the marketing side created a communication matrix of celebrities and used online and offline media to boost brand potential; the channel side transformed the image of stores and strengthened private traffic; the production side relied on 5G smart factories to promote “intelligent digital transformation”.

In February 2023, the company announced that it plans to increase no more than 1.18 billion yuan to upgrade experience stores, build e-commerce centers, and build R&D center projects. The high-end brand upgrade process is expected to accelerate.

Profit forecasts and investment recommendations. The company's 2023-2025 EPS is expected to be 0.05/0.07/0.09 yuan/share, respectively. Referring to the DCF valuation, the company's reasonable value is 4.89 yuan/share, maintaining the “increase in holdings” rating.

Risk warning. Risks of rising raw material prices, low demand for terminals, and supply chain upgrades falling short of expectations.