Revenue increased by 12% in 2016, net profit fell 42%. The decline in gross margin affected the company's revenue performance in 2016 of 670 million yuan, an increase of 12.35%. The net profit returned to the mother was 21.4829 million yuan, a decrease of 42.33%, after deducting non-net profit of 17.2896 million yuan, a decrease of 47.31%, and EPS 0.18 yuan.
0.23 yuan for 10 groups (before tax). The profit growth rate was significantly lower than revenue mainly due to declining gross margin and increased investment in the Internet vertical e-commerce business. The difference in net profit before and after deduction is mainly due to a year-on-year decrease in non-recurring profit and loss due to a decrease in government subsidies of 9.99 million yuan.
On a quarterly basis, the 16Q1-17Q1 revenue growth rate was +0.73%, +29.71%, +9.82%, +12.14%, +2.39%, and the net profit growth rate of the mother was +8.36%, -101.57%, -40.38%, and -48.89%.
In 2016, the company increased its promotional efforts and expanded its group buying business, and revenue continued to grow in a single quarter; in 17Q1, the group buying revenue growth rate declined, and the revenue growth rate was relatively low. The increase in the share of group purchases in 16Q3 led to a sharp decline in gross margin over the same period last year. The main business experienced losses. The decline in gross margin of 16Q4-17Q1 and the increase in management expense ratios led to a continuous decline in net profit.
Promotions in 2016, popular sales of IP derivatives, and group purchase business development led to an increase in revenue. The company's revenue continued to grow in 16 years due to: 1) The company cooperated with well-known animation IPs through e-commerce channels to create popular children's home textile derivatives, and online channel revenue grew rapidly. 2) The company is equipped with a professional team to expand group buying businesses such as medical textiles and banking schools. Group purchase revenue increased by about 100% in 2016, with revenue of around 60 million yuan. 3) The company closed some unprofitable stores and optimized the channel structure. The overall number of direct and dealerships remained stable. At the same time, terminal promotion efforts were increased, and offline channel revenue increased slightly.
By product, the company's revenue for kits, quilts, pillows, and other products increased by 16.94%, -1.11%, -3.45%, and 23.58% respectively in 2016. Hot sales of IP derivatives led to an increase in kit revenue.
Looking at the subregions, revenue from the main sales regions of Central China, East China, South China, and Southwest China increased by 16.03%, 3.20%, 10.41%, and 5.23% in North China, Northeast China, Northwest China and other places increased 15.86%, 7.49%, 25.35%. Revenue from all regions resumed growth, and the effects of measures to boost revenue such as channel adjustments, increased promotion efforts, and expansion of group buying were obvious. Export revenue fell to 0, mainly due to a decrease in export orders.
Gross margin declined markedly in 2016, the expense ratio was reduced, and the gross profit margin of inventory increased slightly: the gross margin in 2016 was 37.65%, down 3.95 PCT from the previous year. The main reasons were as follows: 1) Competition in the industry was fierce, and prices declined due to strong promotions by the company and the main textile business; 2) Group buying business grew significantly, leading to an increase in the share of product revenue with low gross margin and a reduction in the overall gross profit margin.
The gross margin of 16Q1-17Q1 was 39.53% (-3.59PCT), 36.73% (-5.42PCT), 33.99% (-6.93PCT), 39.77% (-0.96PCT), 39.16% (-0.37PCT). After 16Q4, the company maintained its current promotion efforts. The share of group purchase revenue stabilized, and profitability increased after channel optimization. The gross margin declined slightly year-on-year, showing an upward trend from month to month.
Fee rate: The fee rate decreased by 1.14PCT to 32.38% over the same period of 16 years. Among them, the sales expense ratio decreased by 1.53 PCT to 20.02%, mainly due to a decrease in rental expenses due to store adjustments, etc.; the management fee rate increased by 0.16 PCT to 14.13%, mainly due to an increase in investment in vertical e-commerce and other businesses. If you exclude this influence, the management expense ratio decreased by about 3 PCT; the financial expense ratio increased by 0.23 PCT to 0.37%, mainly due to a decrease in deposit interest income.
The cost rate increased by 2.42PCT to 34.51% during the 17Q1 period. The management fee rate increased by 1.77PCT to 14.13% mainly due to the increase in personnel remuneration and the commencement of use of industrial parks.
Other financial indicators:
1) Inventory in 2016 increased by 6.50% to 237 million at the beginning of the period, inventory/revenue was 35.32%, inventory price reduction preparation/inventory was 2.03%, and the inventory turnover ratio was 1.82, up from 1.64 last year. The company's promotions were strong in the first three quarters, and inventory turnover accelerated. Inventory in 17Q1 fell slightly by 0.55% from the beginning of the year to $235 million.
2) Accounts receivable in 2016 fell 22.52% to 358.326 million from the beginning of the year, mainly due to the company's tightening of credit control over franchisees and recovering some of the payments; 17Q1 accounts receivable increased slightly by 0.67% to 3.6723 million yuan.
3) Asset impairment losses increased by 76.85% to 2,462,500 yuan in 2016, mainly inventory price decline losses increased by 2.5069 million yuan; asset impairment losses decreased by 246.48% to -111,600 yuan in 17Q1, mainly due to the recovery of some long-aging payments.
4) Non-operating income decreased by 39.88% to 2,043,000 yuan in 2016, of which government subsidies decreased by 9994,000 yuan; in 17Q1, non-operating income fell 95.51% to 32,300 yuan.
5) Investment income in 2016 increased by 31.66% to 3.4625 million yuan, mainly an increase in earnings from wealth management products. In 17Q1, it fell 48.37% to 759,700 yuan, mainly a decrease in wealth management products.
6) Net operating cash flow decreased by 22.07% to $248.23,200 in 2016, mainly due to a higher increase in cash outflow from operating activities. Net operating cash flow in 17Q1 decreased by $9.652,400 to -407.14,600 yuan.
Major home textile brands have been upgraded, investment in vertical e-commerce on the Internet has been reduced, and the IP derivatives business has been promoted to expand the main home textile business. The company is positioned in the mid-tier markets of China's second- and third-tier cities, focusing on fashion and high cost performance, mainly targeting young consumers in the regional market. In 2017, the company carried out a brand upgrade, proposed a “light fashion” position, and carried out improvements in R&D design, brand marketing, channel layout, etc. 1) The company focuses on R&D of new fabrics, new processes and new styles, and launches more than 200 new products every year. In 2016, it invested 3.63 million yuan in R&D, an increase of 38.48%, accounting for 5.38% of revenue. In the future, the company will strengthen the development of pattern design and functional fabrics, and launch more innovative functional products to upgrade its brand positioning. 2) The company uses emerging media such as WeChat, Weibo, and community forums to vigorously promote the company's fashion quality product positioning, and strengthen brand awareness and image in the minds of consumers through direct-run store research and store quarterly and annual promotions. 3) On the channel side, the company will continue to expand its direct network, strengthen the expansion of large stores, enhance the consumer experience with physical terminal stores, upgrade the scale and image of franchise stores, continue to consolidate the Tmall platform online while expanding platforms such as JD and Vipshop, and deepen cooperation with Animation IP to launch more best-selling products.
The company began expanding the Internet vertical e-commerce and IP derivatives operation business in early 2016, and launched the Internet vertical e-commerce platform HBDIY. However, it fell short of expectations in terms of the integration of Internet and supply chain resources, e-commerce information system construction, and consumer acceptance. Investment in vertical e-commerce led to an increase in management expenses such as personnel remuneration, R&D, etc., and the company will gradually reduce investment related to Internet vertical e-commerce later. In the future, the company will focus on promoting e-commerce business related to its main business, including joint development of derivatives such as home textiles, furniture, etc. with animation IPs such as Garfield, Little Maruko Cherry, Princess Barbie, and Thomas Little Train, and strengthen cooperation with other well-known IPs such as anime, celebrity artists, music platforms, video platforms, game platforms, and two-dimensional platforms. Home textile derivatives collaborated with animation IP in 2016 were well received, and the results of the derivatives strategy were initially shown. It is expected to continue to drive revenue growth in the main business in the future.
Taking the initiative to seek transformation and lay out smart home projects after terminating mergers and acquisitions of e-commerce incubators were affected by the slowdown in industry growth and fierce market competition. The company's home textile main business development space was relatively limited, and it actively planned to transform into industries related to its main business and emerging industries. 2017.1.6 Announced that the company name was changed from “Duosiai Home Textiles Co., Ltd.” to “Duoiai Group Co., Ltd.”, demonstrating the company's determination to diversify its business development. 2017.1.11 The company stopped trading and planning important matters. It plans to purchase all the shares of e-commerce companies in the textile and garment industry by issuing shares and paying cash. The target company is an e-commerce brand incubation company that finds and builds influencers and star stores. 2017.2.17 New refinancing regulations were introduced. This asset restructuring did not meet the requirement that “the number of shares to be issued shall not exceed 20% of the total share capital before issuance”, so the company terminated the restructuring and resumed trading on 2017.3.17.
2017.4.1 The company announced that it has reached a strategic cooperation with Hard Egg Technology Co., Ltd. to jointly build an “AI+ Home Textiles” ecosystem for smart homes and explore the integration of artificial intelligence with traditional industries. Hard Egg Technology is the largest smart hardware innovation and entrepreneurship platform in China, providing services centered on the smart hardware supply chain. It has now established a smart car ecosystem, smart home ecosystem, big health care ecosystem, robot ecosystem and material ecosystem, bringing together 10,000 smart hardware projects, 80,000 suppliers and 8 million fans. The two sides will jointly form a marketing team to carry out comprehensive cooperation around the smart home industry. Currently, nearly 100 smart home projects from the Hard Egg platform have been recommended to Doo Fai. This cooperation is the initial launch of new industries related to the company's main business. It is expected to open up new business development space and open up new performance growth points. It is worth looking forward to future investment in related industries.
Net profit in 17H1 is expected to drop 45% to 15% year-on-year. Focusing on the development of the smart home industry layout, we believe: 1) In terms of the main home textile business, the company continues to be based on cost-effective products. The number of stores remains stable. Channel optimization is expected to drive the upgrading of the same stores, and e-commerce and group buying businesses will also continue to gain strength. The company will cooperate with more high-quality IP to develop home textile derivatives to drive the growth of home textile product sales.
2) In 2016, the company increased its promotional efforts, which led to a decline in gross margin, which dragged down the decline in net profit. In 2017, the company will upgrade its brand and improve its product positioning, and the downward trend in gross margin is expected to ease. At present, the company's production base in the Changsha Industrial Park has been gradually put into production. The share of production capacity from sources will increase in the future, guarantee product quality and reduce costs, but it will also lead to an increase in cost rates in the short term. 3) The company actively sought business transformation, changed the name of the company to “Duoiai Group Co., Ltd.”, planned to acquire an e-commerce incubation company (later terminated due to policy reasons), and cooperated with Hard Egg Technology to lay out smart home projects. Future investment in emerging industries such as smart homes is worth looking forward to. 4) 2016.7.26 Institutional shareholders Dachen Caixin and Dachen Venture Capital plan to reduce their holdings by no more than 9.1 million shares before 2017.1.28, accounting for 7.58% of the total share capital. After the holdings reduction was completed on 2016.12.28, Dachen's shareholding ratio fell to 4.93% after the holdings were reduced.
The company expects to achieve net profit of 544.21 to 8.4106,000 yuan in 2017 H1, a year-on-year growth rate of -45% to -15%. Mainly due to 17H1 group purchases and the expansion of the Internet vertical e-commerce business falling short of expectations, cost increases due to trial operation of the Changsha Industrial Park, and there is uncertainty about the impact of smart home transformation on performance.
The 2017-19 EPS was adjusted to 0.14/0.19/0.25 yuan. Against the backdrop of weak short-term industry demand, the performance pressure was still strong, and the valuation was high, giving it a “neutral” rating. However, in the long run, the company's IP derivatives business has a lot of space, and the new business layout such as smart homes is worth paying attention to.
Risk warning:
The expansion of the marketing network fell short of expectations, the implementation of the IP derivatives development business fell short of expectations, investment in the smart home business affected performance, etc.