Revenue growth has returned to positive in all quarters of the 18 years, and net profit has turned around.

In 18 years, the company realized operating income of 7.677 billion yuan, an increase of 18.62% over the same period last year. The net profit of 40.36 million yuan returned to its mother was compared with-305 million yuan in 17 years, and the non-net profit was 12.69 million yuan, which was higher than that of-321 million yuan in 17 years. EPS0.02 yuan. Since the 17Q4, the company's revenue has continued to grow positively, and the profit side has continued to be positive, reversing losses compared with the same period last year.

Quarter by quarter, there are fluctuations in each quarter, but the overall continued to maintain a year-on-year recovery trend. 18Q1~Q4 income increased by 30.12%, 43.97%, 4.05% and 4.96% respectively. Affected by the weak retail environment, income growth slowed to single digits in the second half of the year, with net profits of 5041, 271,-1297 and 220000 yuan, respectively. The company's performance is in line with our expectations in the three-quarter review, that is, the bottom of the revenue side rebounded in the context of the previous business adjustment, but the extent of the recovery has been disturbed to a certain extent as the terminal consumer environment has been weak since the 18Q2.

The revenue growth of the joining channel is high and the performance is outstanding.

From the perspective of sub-channels, the revenue of joining channels is outstanding, growing by 33% year-on-year in 18 years, and accounting for about 35% of total revenue (about 30% in 17 years). In direct channels, e-commerce accounts for about 10% of total revenue, with a low double-digit year-on-year growth rate. Offline direct store sales revenue is estimated to grow by about 10%, of which comparable store sales growth of about 7% contributed to the main growth.

In terms of brands, the revenue of the main brands Meibang, ME&CITY and children's clothing brand Moomoo+ increased by 13%, 48% and 24% respectively compared with the same period last year. Among them, the main brand still accounts for the majority of the revenue. It is estimated that the revenue of the main brand is about 80%, ME&CITY is in the low double digits, two children's clothing brands account for single digits, and the other small brand Qi is smaller and the estimated revenue volume is in the tens of millions.

In terms of categories, the main categories of men's and women's clothing accounted for 55% and 37% of the income respectively, and the income increased by 10.95% and 31.58% respectively over the same period last year.

In terms of the number of channels, it is estimated that the total number of channels of the company is 3,500 to 4000, which has shrunk in recent years, but considering that the company continues to upgrade channels and open large stores, the total area is estimated to have increased.

Gross profit margin, expense rate and asset impairment loss have all declined, and inventory digestion has passed the peak.

Gross profit margin: the 18-year gross profit margin decreased by 2.79PCT to 44.66% compared with the same period last year, and inventory removal continues to affect the gross profit margin. In addition, the higher growth rate and higher share of the franchise business with lower gross margin also have an impact. The gross profit margin of direct marketing and franchise channels is estimated to be about 50% and 40%, respectively. Q1~Q4 single-quarter gross profit margin fell 5.73,1.57,0.21 and 4.23PCT respectively compared with the same period last year.

Expense rate: during the 18-year period, the expense rate decreased by 4.78PCT to 40.37% compared with the same period last year, which decreased significantly and exceeded the gross profit margin. The sales / management + R & D / financial expense rates are 35.31% (year-4.56PCT), 4.01% (- 0.27PCT) and 1.05% (+ 0.05PCT), respectively. Among them, the total sales expenses in 18 years increased by about 200 million yuan compared with 17 years, mainly distributed in rent and property management fees, employees' wages and benefits, etc., but with the improvement of income and growth rate, the rate of sales expenses decreased, indicating that the benefits of cost management have been released to a certain extent.

Other financial indicators: 1) inventory is 6.19% lower than at the beginning of 18, and inventory turnover has continued to accelerate since the beginning of 18. Inventory turnover days are 208 days, less than 233 days in 17 years, but still high compared to history. Inventory levels are expected to have passed the peak and are still being digested.

2) accounts receivable increased by 10.26% to $1.217 billion over the beginning of 18, mainly due to an increase in the amount of credit sales.

3) the loss of impairment of assets decreased by 30.97% to 313 million yuan compared with the same period last year, of which the price loss of inventory was 230 million yuan, down 37.66% from the same period last year, and the loss of bad debts was 43.91 million yuan, an increase of 189.22%.

From the perspective of inventory provision, both the inventory book balance and the inventory price reduction provision increased in 2014-2017, but the provision ratio (inventory decline price provision / inventory book balance) continued to decline in 2017-2018 and 16.01% in 2018 after climbing to a high of 20.39% in 2016. Combined with the 2018 company inventory book balance and price reduction provisions are lower than the same period last year, indicating that the company's inventory work has gradually reflected the effect in recent years, and the total amount and structure have been improved.

4) the net cash flow of operating activities is up to 622 million yuan, of which the cash obtained from selling goods increased by 12.10% to 8.242 billion yuan (higher than income), while the cash expenditure on purchasing goods decreased by 4.72% to 4.426 billion yuan compared with the same period last year. It shows that the company is still cautious in taking the initiative to control the purchase scale and inventory management.

Business adjustment bottomed out and rebounded, while direct marketing and joining took a turn for the better.

Reviewing the development history of the company in recent years, since 2012, the company has entered a period of adjustment with the industry and a decline in revenue. The decline in income reached a high double digits from 2013 to 2014, and narrowed in 2015. However, the rigidity of expenses and income tax have greatly increased the company's net profit loss of 432 million yuan, which is the low performance point in recent years. In 2016-2017, the low-digit income fluctuates positively and negatively, which is difficult to say. And the loss in 17 years is 305 million yuan, which is caused by the rigidity of expenses and large amount.

In 2018, the company's revenue improved significantly, and the year-on-year growth rate of revenue rose to nearly 20% from the positive and negative single-digit fluctuations in previous years. The main changes were mainly brand adjustment and a rebound in revenue growth, of which the obvious improvement of franchise channels was the main contributing factor.

The main brand dominates the company's revenue, and the company's overall revenue has not improved significantly as a result of the continuous adjustment of the main brand in 2012-2017. From the point of view of the direct operation and joining of the main brands, the improvement of the direct channel comes before joining. The revenue of the direct channel has become regular in 2015 and increased by 7% compared with the same period last year, and the growth rate continued to improve by 10% in 2016. However, the adjustment effect of the joining channel has not yet been reflected and continues to decline, which is a drag on overall income growth. In 2018, the total revenue of the franchisee increased by 33% (most of the main brands) showed a significant improvement, promoting the company's revenue growth to increase significantly.

Analyze the reasons for the improvement of the main brand business, and in recent years, the company continues to upgrade the brand, product and channel. In 2016, the company re-combed, upgraded and fission the brand positioning and products of the main brand, comprehensively stylized and quality-oriented, and launched five series of NEWear, HYSTYL, nimble vachic, MTEE and ASELF to adapt to different styles and needs, improving the marketability of the products. In terms of channels, the company has successively implemented terminal image upgrading, store management standardization, refinement, sales promotion management, adjustment and optimization of channel structure and layout, establishment of shopping center benchmarking stores, etc. under the background of the reduction in the number of stores, the total business area is increasing, and the area and efficiency of individual stores have been improved.

In terms of small brands, the proportion is still low, but it has maintained a high growth rate and great potential for growth. The ME&CITY brand maintained a continuous growth rate of more than 20% from 2015 to 2017, rising to 48% in 18 years. The combined income of the two children's clothing brands Moomoo and Mishi increased by 41%, 32% and 24% in 16, 17 and 18 years, respectively.

The adjustment effect is being released, and the performance is expected to continue to be repaired.

We believe that: 1) over the past 18 years, the early adjustment of the company's business has begun to show effect, with a rebound in the growth rate at the revenue end and a turnround at the profit end. Combined with inventory, provision and other indicators, it is expected that destocking will continue, but the peak has passed. 2) the company is driven by direct marketing to join, and the improvement effect of joining lags behind that of direct marketing channel, but from the high growth rate of joining channel in the past 18 years, we can see that the overall business adjustment effect has been reflected. In the future, the company will continue to focus on improving the efficiency of individual stores, with joining as the main expansion channel, the effect of fee control will appear, combined with planning to continue to improve, looking forward to further repair of net profit and net interest rate. 3) the company, once a leading local clothing brand, still has a strong leading edge and influence base. according to Euromonitor data, the brand share of the company's main brands in the men's and women's wear sub-industry in 2018 was 0.8% and 0.4% respectively, ranking 14th and 15th, and the share of men's and women's wear in 2018 increased 0.1PCT compared with 2017.

We have raised the EPS to 0.08,0.14,0.18 yuan in 1920 and 21 years, and PE43 times in 19 years. Although the current PE valuation is relatively high, considering that the adjustment of the company's business perspective has bottomed out and rebounded, the direct marketing and franchise channels have improved successively, and healthy growth is expected to resume in the future. And the profit end is expected to gradually return to the previous reasonable level with the improvement of sales revenue, the optimization of business structure and the improvement of operation quality (such as the proportion of joining business, etc.), as well as the reduction of fees and provisions. a low base promotes a higher growth rate of net profit, and the rating is upgraded to "overweight".

Risk hint: consumption is weak and the progress of business adjustment in various channels is not as expected.