1H23 predicts profit to turn from loss to profit compared with the same period last year.

The company issued a half-year profit forecast for 2023: it is estimated that the net profit of 1H23 belonging to shareholders of listed companies is 0.82-98 million yuan, turning losses into profits compared with the same period last year; the net profit of 1H23 after deducting non-recurring profits and losses is expected to be 1.2-144 million yuan, an increase of 137-185% over the same period last year. Based on the median range of net profit after deducting non-recurring profit and loss, the company's 1H23 performance forecast is in line with our previous expectations.

Pay attention to the main points

The results of the reform continue to show, and we expect the 2Q23 terminal to perform brightly. Under the low base of 2Q22, we expect 2Q23 revenue growth to increase month-on-month, which is expected to achieve year-on-year double-high double-digit growth, mainly due to the bright performance of direct channels, and we expect 2Q23 direct revenue to exceed the 2Q21 level. At the same time, we expect the online channel to maintain good growth, reflecting the remarkable effect of terminal retail after the strategic change of the company. However, the wholesale business has been a drag, we think it is mainly due to the early inventory clearance of the franchisee, the order is more cautious. With the elimination of inventories, we expect wholesale business to resume growth in the second half of the year.

The gross profit margin has increased steadily, and the deducted non-net profit has improved significantly. The company announcement reveals a steady increase in 1H23 gross margin, which we expect to benefit from good control of terminal discounts. We expect the net interest rate after deduction to be close to 10%, which is a significant improvement from the 3.9% of 1H22. However, affected by the fluctuation of the secondary market, the profit and loss of the fair value of the financial assets held by 1H23 is expected to be-0.90 to-75 million yuan, although its loss decreased by about 20% compared with the same period last year, but led to a decline in the home net interest rate. In a single quarter, the net profit of 2Q23 is-15 million yuan to 780000 yuan, the median of which is-7.22 million yuan, which is 4.69 million yuan lower than that of 2Q22; after deducting non-recurring profit and loss, the net profit of 2Q23 is 0.18-42 million yuan, which turns losses into profits compared with the same period last year. Among them, the fair value change profit and loss of 2Q23 is expected to be-0.58 to-43 million yuan, which is the main source of non-recurrent profit and loss.

Deepen the strategic reform of men's pants experts and continue to promote the reform of ten-generation stores. The company is committed to "men's pants experts".

Strategic change to create easy pants, business outdoor pants and other best-selling products, and promote the rectification and upgrading of ten-generation stores. Up to now, we expect the number of the company's 10th generation stores (including new and renovated stores) to reach about 850, and will reach about 1000 + by the end of 2023, accounting for about 50% of the company's total stores. We expect that the increase in the number of more efficient ten-generation stores may continue to drive the company's performance growth.

Profit forecast and valuation

Taking into account the impact of fair value changes and the continuous investment in brand upgrade costs, we have lowered the company's 24-year profit forecast for 2023 23x/17xP/E by 10.4% to 292 million RMB. The current stock price is corresponding to the 24-year Universe in 2023, maintaining an industry rating that outperforms. At the same time, considering that the long-term growth logic of the company remains unchanged, we maintain the target price of 14.82 yuan, corresponding to the company's 2023 29x/21xP/E, which is 26.1% higher than the current stock price.

Risk

The progress of store expansion and the improvement of store efficiency are not as expected, the marketing investment is higher than expected, and the risk of investment loss.