Steady revenue growth, increased sales expense ratios, and asset impairment charges in preparation for drags down profits

2019H1 achieved 1,294 million yuan, an increase of 12.46% over the previous year, the net profit of Guimo was 191 million yuan, an increase of 6.38% over the previous year, and the net profit of Guimo after deduction was 189 million yuan, an increase of 8.10% over the previous year.

The single-quarter revenue of 2019Q2 was 645 million yuan, an increase of 9.73% over the previous year, and the net profit of the mother was 77 million yuan, an increase of 3.98% over the previous year. The decline in net profit growth in a single quarter was mainly due to a marked increase in the sales expenses ratio due to the increase in store opening and leasing expenses in the second quarter, as well as an increase in inventory price reduction losses.

Direct distribution stores expanded, and revenue from all channels grew steadily

Looking at each channel, the company's direct operation/distribution/e-commerce revenue in 2019H1 was +12.88%/+15.55%/+11.32%, respectively, accounting for 51.08%/19.30%/29.62%. By brand, Manifin, Evis, Lan Zhuoli, and Plus One Plus reached 62.56%/15.59%/8.86%/6.76% respectively (no sub-brand data was disclosed for the same period last year). In terms of channels, the company had 1333/1668 direct management/distribution channels at the end of the second quarter, an increase of 33/123 respectively over the beginning of the year.

Promoting the restructuring of the brand division into a subsidiary company is expected to improve the operating efficiency of the company by transforming the original brand division into a subsidiary system, so that the interests of the subsidiary company are closely linked to the interests of the employees of the brand division in the form of equity. At present, brands such as Plus One Premium, Lan Zhuoli, Sangfuran, Secret Weapon, and Evis have all set up relevant operating subsidiaries. Through restructuring, it is expected that employees will be motivated, operational efficiency will be improved, and brand development will be accelerated.

The estimated performance for 2019-2021 is 0.60 yuan/share, 0.70 yuan/share, and 0.77 yuan/share, respectively. The company has a number of mature underwear brands operating with a wide range of channels, and the performance of each brand is growing steadily. The company's 2019 EPS is expected to be 0.60 yuan, and the company's valuation has been more than 15 times since listing. As a leading domestic underwear brand, the company was given a 2019 PE valuation 16 times, corresponding to a reasonable value of 9.60 yuan/share, maintaining the “increase in holdings” rating.

Risk warning

The risk of a downturn in retail sales, the risk of production capacity falling short of expectations, and the risk of poor operation of the target of the acquisition.