Key points of investment
In 2023, H1's net profit was -90.8% year-on-year, and the company's operating performance during the adjustment period was under pressure: in 2023 H1, the company achieved revenue of 1,242 billion yuan, -40.5% year-on-year, achieved net profit of 53 million yuan, and -90.8%, achieved net profit loss of 49 million yuan after deducting non-attributable net profit loss of 49 million yuan, of which the difference was mainly investment income of 119 million yuan. By disassembling Q2 alone, the company achieved revenue of 537 million yuan, or -37.9% year-on-year, realized a net profit loss of 48 million yuan, and realized a net profit loss of 100 million yuan after deducting non-return income. In H1 in 2023, the diamond setting industry was adjusted in stages. At the same time, the company's store channel layout and operation management capabilities are still being adjusted and optimized, and business performance is under pressure.
Expenses under the direct management model are relatively rigid, and the cost ratio has increased dramatically: in Q2 2023, the company achieved a gross profit margin of 68.54%, a year-on-year decline of 1.39 pct, a year-on-year decline of 1.39 pct, a sales expense ratio of 65.16%, +27.02 pct over the previous year, and a management expense ratio of 6.02%, +1.82 pct. The company's offline stores are fully directly managed, and the expenses to be borne are quite rigid, so the impact on the profit side will be further amplified.
Stores are being adjusted, waiting for terminal demand to pick up: in H1 in 2023, the number of company stores was 676, 15 new stores were opened in the first half of the year, 27 low-potential stores were closed, 27 low-potential stores were closed, and a net decrease of 12 stores were recorded. Looking at store efficiency, in H1 in 2023, the company's direct store revenue was 1,617,000 yuan, or -56.4% year on year, single store floor efficiency was 17,300 yuan, or -57.7% year over year, joint store revenue was 1.775,500 yuan, -51.6% year on year, and single store efficiency was 24,900 yuan, or -51.75% year on year. In H1 in 2023, the company actively adjusted its channel strategy, took stock of existing stores, adjusted and optimized channels based on changes in the business district, customer quality matching, brand positioning, etc., and waited for recovery.
Brand culture: The original “only one person for a lifetime” purchase rule highlights the “only one” characteristic, forms a unique brand culture barrier and is difficult to copy: DR brand's original “men can only customize one piece in their lifetime” purchase rule, restricts purchasing eligibility by binding an ID card, integrates the brand with emotional connotations such as “one life, only one, true love”, etc., and effectively separates it from competing products. It is the first to seize consumer awareness, and it is difficult to be copied and replaced.
Profit forecast and investment rating: Currently, Deere Co., Ltd.'s stores are still being adjusted. Considering the uncertainty in the store adjustment period and uncertainty about the recovery of demand for terminal embedding, the cost side expenses under the company's full direct management model are also relatively rigid, and may still be high in the short term. We lowered our net profit for 2023-2025 from 84 million yuan/1.15 billion yuan/1.45 billion yuan to 175 million yuan/280 million yuan/320 million yuan. The latest closing price corresponds to 75/47/41 times PE for 2023-2025, maintaining the “increase ” Ratings.
Risk warning: negative public opinion risk, risk of terminal consumption recovery falling short of expectations, etc.