The company achieved revenue/net profit of +30.7%/-44.8% year-on-year in 2022. Revenue continued its rapid growth trend. Higher transportation costs and expenses and higher marketing expense ratios dragged down profit-side performance. Looking at the short term, on the one hand, the company continues to develop high-quality e-commerce platforms such as Amazon and Temu, and is expected to continue high-quality development in the face of pressure from overseas demand; on the other hand, with the decline in freight rates and optimization of sales expenses in 2023, the company's profitability is expected to pick up somewhat. Looking at the long term, in the context of the rapid growth of the clothing cross-border e-commerce industry and the clothing category on the Amazon platform, the company is expected to fully enjoy platform empowerment and industry dividends, and performance growth is highly certain. We expect the company's cross-border e-commerce business to continue to grow and maintain its “buy” rating.

Operating income/net profit for the full year of 2022 was +30.7%/-44.8% year on year. The company announced its 2022 annual report, which achieved annual revenue of 3,066 million yuan/ +30.7%, and net profit of 111 million yuan/ -44.8%, of which 2H22 achieved operating income/net profit of 18.02/052 million yuan, +45%/-33%, respectively. The decline in net profit was mainly affected by rising transportation costs and expenses, and the rise in marketing expenses driven by the launch of more new products in 2022 (according to the company's 2022 performance exchange call, Amazon e-commerce platform invested heavily in marketing during the new product introduction period, about After 1 year, new products will gradually enter a payback period, and the marketing cost rate for a single product is expected to gradually decrease at that time). Looking at business channels, the revenue of third-party e-commerce platforms/self-operated websites was +43%/-55% year-on-year. This was mainly due to the fact that, on the one hand, the company focused on developing the Amazon business, and on the other hand, re-incubated self-operated websites on merit, and some sites with poor profit quality were abandoned. By region, revenue from North America/Europe/other regions was +45%/-62%/-68% year on year, mainly due to the concentration of the company's business focus on Amazon (its platform business is concentrated in North America).

Business analysis - rising freight and marketing costs. The company's annual gross margin reached 76.6%, +1.4pcts over the previous year. Through price increases and procurement optimization, some of the negative effects of rising first-trip logistics costs were offset. At the same time, the overall sales expense rate/management expense rate/financial expense ratio was +7.3 pcts/+0 pct/+0.2 pct over the same period. The increase in sales expenses was mainly due to an increase in marketing and advertising expenses, and an increase in the revenue and total return rate of third-party e-commerce platforms, leading to an increase in e-commerce platform commissions and other distribution costs. The company's inventory size was +14% year on year and -1% month-on-month to 754 million yuan. Under the downward pressure of overseas economies, inventory turnover remained stable.

Future outlook: Continued development of high-quality platforms, lower freight rates are expected to improve profitability. Looking at the short term, on the one hand, the company continues to focus on developing Amazon channels and developing emerging e-commerce such as Temu, which is expected to continue high-quality development on high-quality e-commerce platforms; on the other hand, with the decline in cross-border freight charges and the optimization of digital systems for marketing expenses, the company's profitability is expected to pick up, which is expected to help the company operate steadily against the backdrop of pressure on demand in overseas markets. Looking at the long term, in the context of the rapid growth of the clothing cross-border e-commerce industry and the clothing category on the Amazon platform, the company is expected to fully enjoy platform empowerment and industry dividends, and performance growth is highly certain.

Risk factors: Overseas consumer demand is slowing down; industry competition intensifies; self-operated websites fall short of expectations; international trade frictions escalate; logistics costs rise; changes in third-party e-commerce platform policies; risk of rising company marketing traffic costs.

Profit forecasting, valuation and ratings: The company achieved a revenue/net profit ratio of +30.7%/-44.8% year on year in 2022. Continued rapid revenue growth, rising transportation costs and expenses and rising marketing expense ratios dragged down profit-side performance. Considering the macroeconomic performance and retail environment expectations of overseas markets for half a year, we lowered the company's 2023/24 EPS forecast to 0.58/0.75 yuan (the original forecast was 0.67/0.98 yuan), and the new 2025 EPS forecast was 0.90 yuan. Referring to the PE valuation levels of leading Chinese sellers in Amazon Home and other categories, Lego Co., Ltd. and Anker Innovation (the current price corresponds to the 2022/23 average PE 17/13 times, based on Wind's consistent expectations), we gave the company 11 times PE in 2023, corresponding to the target price of HK$7.2, maintaining the “buy” rating.