Incident Overview

2023H1 Company's revenue/net profit/net profit non-attributable net profit/operating cash flow of 5.56/0.22/0.13/82 billion yuan respectively, up 19.5%/3.1%/230.4%/239.0% year-on-year, up 35.8%/51.7%/384.4%/1493.6% over 21H1. The increase in net profit attributable to income was lower than revenue mainly due to loss of inventory prices and increase in impairment losses of contract performance costs; the increase in non-attributable net profit was higher than net profit due to a year-on-year decrease of 17 million yuan in non-current asset disposal (long-term equity disposal); higher operating cash flow than net profit due to a decrease in accounts receivable. Overall, the outdoor business developed well in the first half of the year, and the revenue growth rate surpassed the sports industry; in terms of the chip business, Beijing Xinneng fell short of promised expectations, and G2 Touch's performance exceeded our expectations.

2023Q2 Company's revenue/net profit/ net profit not attributable to parent was 33.13/0.03/-0.01 billion yuan, respectively, an increase of 23.64%/-74.62%/99.96% over the previous year. The lower growth rate of net return profit than income was mainly affected by the increase in asset impairment losses.

Analytical judgment:

The main business achieved 18% growth. The growth rate was better than that of sports peers, mainly due to joint venture contributions. Revenue split: 23H1's outdoor products industry revenue was 540 million yuan, an increase of 17.80% over the previous year. (1) By product, the revenue of outdoor apparel, outdoor footwear, outdoor equipment, and others was 4.00/0.98/0.35/0.07 billion yuan, respectively, an increase of 19.76%/39.82%/-17.38%/-41.96% over the previous year. (2) By brand, Pathfinder/Discovery/toreadKids/toread.x achieved revenue of 486/0.10/0.31/0.06 billion yuan, respectively, an increase of 29.74%/-76.02%/38.00%/-3.48%. The decline in Discovery was mainly due to agreements signed between the company and relevant parties, and the brand was in a transition period. (3) By channel, online/direct/franchise/joint market/group major customer business and other revenue were 1.15/0.99/0.93/1.22/120 million yuan respectively, up 8.9%/7.7%/-45.2%/245.2%/245.3%/176.1% over the previous year. According to the company announcement, the company has developed direct/joint stores in key regions such as Beijing, Tianjin, Guangzhou, and Chengdu. (4) Looking at internal and external sources, offline direct management channel optimization has accelerated, store efficiency has improved dramatically, franchises (including joint ventures) have resumed opening stores, and single store shipments have declined: 23H1 direct management/franchise (including joint ventures) achieved revenue of 0.99/215 million yuan, an increase of 7.7%/4.6% over the previous year. 23H1 has 830 stores (direct management/franchise (including joint ventures), 91/739, respectively, a year-on-year increase of -46.5%/20.2%), 34 net stores in the first half of the year (net opening of direct-management/franchise (including joint ventures) -6/40); estimated that direct management/franchise (including joint ventures) store efficiency for half a year will be 109/290,000 yuan, up 101%/-13% year on year, 71%/75% over 21H1; single store area was 99/95 ㎡, down 4%/1% year on year, and average efficiency for half a year 10/0.31 million yuan/㎡, The year-on-year increase was 109%/-12%, an increase of 74%/73% over 21H1; among directly managed stores, the efficiency of mature stores that have been in business for 12 months or more was 2,527,300 yuan/year, an increase of 129.96% over the previous year. (5) By region, the main sales regions, North China/East China, achieved revenue of 207/84 million yuan respectively, an increase of 35.8%/-22.0% over the previous year.

Beijing Xinneng had a net loss in performance, and many G2 Touch technologies have entered the R&D stage. 23H1's chip business revenue was 154.437 million yuan. From the perspective of subsidiaries, Beijing Xinneng/G2 Touch's revenue was 32.75/15.1162 million yuan, respectively, and net profit was -384.0.72/3,3623 million yuan, respectively. 23H1 Beijing Xinneng's Mini LED backlight and direct display chip have both launched new single-layer board products. At the same time, the company has achieved stable output of pixel particles with a spacing of 0.8 mm.

G2 Touch's LCD touch IC products have formed a mature product matrix. There are many chip products for laptop screens of different sizes and resolutions. The company is currently developing low-cost solutions and active pen products with customers, undertakes Samsung's automotive touch chip research and development project (expected to be completed by the end of 23), and will generate sales volume in the terminal market in the future; the company's unique technology realizes suspension sensing through touch chips, and is currently discussing near-field sensing functions with Samsung; it has the ability to supply large-size OLED folding screens.

The sharp improvement in gross margin came from an increase in the share of joint ventures, an improvement in terminal discounts, and an increase in asset impairment losses, putting pressure on net interest rates. (1) 23H1's gross margin was 53.36%, up 10.16 PCT year-on-year, sub-channel: online/direct/franchise/joint market/group major customers and other gross margin was 59.85%/69.47%/50.81%/42.99%, year-on-year increase of 14.32/9.88/15.77/13.28/-4.76PCT; 23H1's net profit margin was 3.89%, down 0.62 PCT, mainly due to: 1) Asset credit/impairment The share of losses increased by 11.69/- 3.11PCT. Asset impairment losses were mainly affected by falling inventory prices and increased impairment of contract performance costs. The share of credit impairment losses declined due to the return of bad accounts receivable losses; 2) The share of other income and net income from investments decreased by 4.41 PCT, mainly due to a decrease of 77% in wealth management products and equity disposal income; 3) The share of minority shareholders' profit and loss decreased by 2.38PCT; 4) The income tax rate increased by 0.49PCT; 5) Sales/management/R&D/financial expenses rate decreased by 3.8/3.98/3.98/3.9/ 0.89/ 0.58 PCT. Among them, the sales expense ratio was mainly affected by the increase in revenue scale. The increase in employee remuneration, mergers and acquisitions, and amortization of intangible assets led to a year-on-year increase of 58.17% in management expenses; 6) the share of non-operating net income and net income from changes in fair value increased by 0.02 PCT; 7) the share of taxes increased by 0.18 PCT. (2) From the perspective of major holding companies, the net profit of Beijing Pathfinder/Zhengzhou Pathfinder/Tianjin Pathfinder/Beijing Watch Greenway/Beijing Xinneng/G2Touch was 0.34/0.03/-0.10/0.01/-0.38/0.03 billion yuan, respectively, and the net interest rate was 16%/13%/-49%/5%/-11727%/22%, up 23/15/33/7/11688/NA PCT. (3) 23Q2 The company's gross margin was 56.84%, up 15.78 PCT year on year, and net return margin was 1.02%, down 4.01 PCT year on year. The increase in gross margin was higher than net profit margin mainly due to a sharp increase in asset impairment losses.

Focus on inventory growth and increase in turnover days. 2023H1's inventory was 305 million yuan, up 17.23% year on year, inventory turnover days were 228 days, up 45 days year on year; accounts receivable were 307 million yuan, down 39.19% year on year; accounts receivable turnover days were 110 days, down 81 days year on year; accounts payable were 126 million yuan, up 2.92% year on year, and accounts payable turnover days were 129 days, up 27 days year on year.

Investment advice

We have analyzed that (1) the growth momentum of the company's main business is relatively good. On the one hand, the share of the joint venture model has increased, increasing profit flexibility. On the other hand, after hiring a new spokesperson, Liu Haoran last year, the company's brand power has improved, and at the same time, store efficiency has improved markedly. (2) Judging from the chip business, it is expected that Beijing Xinneng will reduce losses in the second half of the year, while the G2 Touch merger and acquisition was relatively successful, benefiting from technology development and downstream customer development.

Maintain the 23-25 revenue forecast of 1,346/15.65/1,808 billion yuan, maintain the 23-25 return net profit forecast of 122/163/194 million yuan, corresponding to EPS 0.14/0.18/0.22 yuan, and the closing price of 7.42 yuan on August 30, 2023, corresponds to the PE of 23/24/25 at 54/40/34X, respectively, maintaining the “buy” rating.

Risk warning

The opening of the store fell short of expectations, uncertainty about the performance of the target acquisition, camping sustainability, and systemic risks.