1H23 net interest rate expansion; inventory improvement; interim dividend Baosheng 1H23 recorded net profit of 305 million yuan, net interest rate + 2.6pp to 2.8% compared with the same period last year, benefiting from the recovery of offline passenger flow, strong growth of online pan micro stores, and improved operating leverage, but partly offset by adverse channel structure and brand subsidies. 1H23 inventory turnover fell to 133 days from 208 in 22 years, below the company's target of 150-160 days. Based on solid cash flow (1H23 net cash is 2.1 billion yuan), the company announced an interim dividend of HK1.85 cents, with a dividend yield of 30%. Although the retail environment remains uncertain in the second half of the year, we believe that Baosheng's trend of optimizing channel mix, reducing cost and increasing efficiency and improving operating leverage will remain unchanged. We raised the 23E-25E basic EPS by 3% to 0.10 PE 0.15 and the target price by 17% to HK $1.31, based on the 10.5x target PE (dynamic PE mean + 0.5SD since 2018, reflecting the recovery of international brands from the bottom after the epidemic) and dynamic EPS 0.11 yuan. "Buy".

Brick-and-mortar stores and pan-micro stores lead the channel recovery; 3Q23's high base or impact on revenue growth benefits from the rebound of international brand post-epidemic sales from a low base. Baosheng's 1H23 revenue is + 11.1% year-on-year, of which brick-and-mortar store / omni-channel revenue is + 10% and 4%. Post-epidemic consumers are more likely to spend offline, so omni-channel income accounts for-4pp to 75% of the total income compared with the same period last year. In omni-channel, the revenue of public e-commerce platform and private pan-micro store (pan-micro store accounted for 19.2% of 1H23 offline direct revenue) increased by 11% and 56% respectively in the first half of the year compared with the same period last year, while B2B revenue also recorded strong growth of + 51% year-on-year (accounting for + 1pp to 11% of omni-channel revenue). The year-on-year sales growth rate of Baosheng in July fell to-6.3% from + 6.6% in June, mainly due to a rebound in the base, and we expect the base to continue to rise and flood pressure in August.

Scale expansion, cost reduction and efficiency improvement to promote the improvement of net interest rate

1H23 Baosheng gross profit margin year-on-year-1.9pp to 33.5%, we believe that it is mainly due to a decrease in brand subsidies or with the improvement of the retail environment, as well as an increase in the share of revenue in franchise channels, B2B and B2C domains with lower gross margins. In spite of this, 1H23 Baosheng operating profit margin / net profit margin year-on-year + 2.2/2.6pp to 4.3 Universe 2.8%, mainly due to: 1) the company streamlined its direct stores and focused on improving human efficiency (the number of direct stores is-16% year-on-year), rental and employee salary decline led to sales and management expenses rate year-on-year-4.8ppposit 2) the sharp rebound in income contributed to the improvement of operating leverage. Considering that the sales promotion is usually strong and the expenses are more in the second half of the year, we expect the year-on-year expansion of net interest rate to be less than that in the first half of the year.

Increase the net profit of 23x24Unix 25e to RMB 660,820 million; the valuation attracts us to increase the gross margin-1.1/-0.2/+0.4pp of 23-25e to 34.5% of 34.5% to reflect the short-term adverse channel structure and the reduction of sales rebates. The operating profit margin of 23-25e was raised to 4.1xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx2m. Baosheng's current share price corresponds to 5.1 times the 12-month dynamic PE, the valuation is attractive.

Risk tips: 1) offline passenger flow recovery is slow; 2) consumers continue to favor domestic brands; 3) brand partners face the expansion of consumer business.