The company's 1H23 revenue/net profit attributable to parent and non-net profit were 58.7/20.7/1.94 billion yuan respectively, with a year-on-year ratio of -38.5%/-34.1%/-35.1%. Among them, the three major businesses of branded apparel, real estate, and investment achieved net profit of 6.0/2.6/1.2 billion yuan, respectively, +33.4%/-84.2%/+19.3%. 2Q23 revenue/net profit to parent was $26.1/1.2 billion, +22.7%/+18.0% year-on-year. Looking forward to the future, the company's main brand is expected to continue to grow well, positive sub-brand adjustments are expected to resume, and the main clothing business still has a lot of momentum for development over a long period of time and maintains a “buy” rating.
The company's performance is under pressure due to cyclical factors in the real estate business. 1) Revenue and profit: The company achieved operating income of 5.872 billion yuan/ -38.51% in the first half of 2023, net profit of 2,065 million yuan/ -34.08%, after deducting non-net profit of 1,939 million yuan/ -35.11%. Among them, 2Q23 achieved operating income of 2,606 million yuan/ +22.74%, and net profit of 1,197 million yuan/ +11.82%. 2) Costs and expenses: The company's 1H23 gross margin was 52.02% /-4.40 pcts, and the sales/management/R&D expense ratio was 24.04%/7.72%/1.11%, year-on-year +10.39/+2.14/+0.52pcts. The company achieved an investment income of 1,694 million yuan/ +4.59% in the first half of the year. Overall, the company's 1H23 achieved a net interest rate of 35.16% /+2.36 pcts, of which 2Q23 had a net interest rate of 45.94% /-1.83 pcts. 3) Assets: As of 1H23, the company's book money balance was 12.048 billion yuan, +8.16% year-on-year. The realized operating cash flow inflow was 2,571 billion yuan (net outflow of 2,316 billion yuan for the same period last year), and cash flow was abundant.
As of 1H23, the company's accounts receivable/inventory balance was $2.06/18.746 billion, respectively, -28.90%/+18.12% year-on-year. The company held long-term equity investment/other equity investment/other non-current financial assets of 207.54/104.90/2,707 billion yuan, respectively, a year-on-year increase of 15.65%/31.69%/4.53%.
Apparel business: The main brand has achieved a good recovery, and the channel structure has been adjusted at an accelerated pace. The company's 1H23 brand clothing business achieved revenue of 3.162 billion yuan/ +13.22%, and net profit of 604 million yuan/ +33.35%. By brand, the main brand YOUNGOR achieved revenue of 2,956 billion yuan/ +16.75%, with a gross profit margin of 75.04% /-0.30pct; the remaining sub-brands achieved total revenue of 206 million yuan/ -21.05% due to fluctuations in business and channel adjustments, with a gross margin of 64.28% /-0.13pct. The company continues to implement a diversified brand development strategy, with the main brand as the core, to build a multi-brand matrix through its own brand upgrades, mergers and acquisitions, and joint ventures. At the same time, it promotes collaborative development of sub-brands and accelerates the layout of fields such as business, leisure, sports and outdoor activities. By channel, the company's 1H23 self-operated outlets achieved revenue of 737 million yuan/ +13.65%, gross profit margin of 76.83% /+1.54 pcts; shopping malls achieved revenue of 422 million yuan/ +21.71%, gross profit margin of 80.20% /-0.62 pct; shopping mall outlets achieved revenue of 1,036 million yuan/ +10.99%, gross profit margin of 79.27% /-0.62 pct; Olay outlets achieved revenue of 264 million yuan/ +62.75%, gross profit margin of 72.05% /+0.24pct; special profit margin of 72.05% /+0.24pct; special profit margin Outlets achieved revenue of 78 million yuan/ +1.74%, gross profit margin of 72.36% /-1.16 pcts; group buying business achieved revenue of 245 million yuan/ -4.64%, gross profit margin of 49.91% /-4.05 pcts; e-commerce achieved revenue of 331 million yuan/ +9.83%, gross profit margin of 67.24% /-1.89 pcts; distribution achieved revenue of 49 million yuan/ -27.25%, gross profit margin of 67.28% /+6.52 pcts. The company has thoroughly implemented the “open big stores and close small stores” adjustment strategy. As of 1H23, the number of company brand outlets was 2016/-41, and 62/103 newly opened/closed stores were respectively.
Other businesses: The real estate business declined cyclically, and the investment business grew steadily. 1) Real estate business: The real estate sector achieved revenue of 2.108 billion yuan/ -66.43% in the first half of 2023, and net profit of 259 million yuan/ -84.16%. Among them, the company launched new projects such as Ningbo Minghu Yiqiuyuan, Shanghai Lingang Xinghai Yunjing, and Wenzhou Future City No. 1 during the reporting period, achieving pre-sale revenue of 8.06 billion yuan. As of 1H23, the company had no new projects. There were 4 completed and partially completed projects, with a completed area of 399,900 square meters; 10 projects under construction at the end of the period, with an area of 1,613,300 square meters; 2 land reserves at the end of the period, with a land area of 247,700 square meters, and a planned construction area of 489,900 square meters. 2) Investment business: Net profit of 1,244 million yuan/ +19.33% was achieved in the first half of 2023. During the reporting period, the company's net foreign investment was 1,017 million yuan, an increase of 624 million yuan over the same period last year. It mainly increased its holdings of Bank of Ningbo by 389 million yuan, capital increase of Yating Real Estate by 335 million yuan, and net purchases of China CITIC Bank by 164 million yuan.
Risk factors: risks such as macroeconomic fluctuations; cyclical industry adjustments and transformation and upgrading; company brand aging and brand adjustment and upgrading falling short of expectations; new brand development falling short of expectations; and fluctuations in the company's investment income due to fluctuations in the operation of invested projects.
Profit forecast, valuation and rating: Considering the contraction of the company's real estate business, the 2023-2025 EPS forecast was lowered to 0.84/1/1.11 yuan (the original forecast was 0.95/1.11/1.25 yuan). According to the segment valuation method, the apparel business refers to the industry's comparable company valuation in 2023 (20 x PE, seven wolves 19 times PE, the seven wolves, 14 times PE, wind unanimously expected), the company's clothing business is given 15 times PE in 2023, corresponding to a target market value of 13.4 billion yuan; the real estate business is given 0.6 times PB in 2023 (see Vanke A, Poly Development, Xincheng Holdings, Jindi Group, Greentown China 2023 average of about 0.6 times PB, wind expectations), corresponding to a target market value of 4.1 billion yuan; The investment business maintained previous cost and equity method valuations, and maintained a target market value of 287 to 35.2 billion yuan; after comprehensive calculation and a 10% discount on the company's group discount, we gave the company a target market value of 428 to 48.6 billion yuan for 2023. Conservative considerations, and finally gave the company a target price of 9 yuan for 2023. Maintain a “buy” rating.