3Q23 performance is lower than we expected.

The company announced its results for the first three quarters of 2023: revenue of 830 million yuan, down 6.2% from the same period last year, and net profit of 130 million yuan, down 38.1% from the same period last year. From a quarterly point of view, Q1/Q2/Q3 's revenue is-9.9%, 6.8%, 12.9%, respectively, and its net profit is-14.4% / turn to loss /-23.5%, respectively. Q3 performance is lower than we expected, mainly due to weak demand and increased market competition in the off-season.

Trend of development

1. 1-3Q23 revenue is-6.2% year-on-year, and the growth rate in the third quarter turns negative compared with the same period last year. 3Q23's revenue was 250 million yuan, down 12.9% from the same period last year, and the growth rate turned negative month on month. We expect that the demand for the traditional main business is still weak, and the confidence of market operators needs to be further repaired. With the winter clothing season approaching, the company strengthens its marketing efforts, carries out cross-border cooperation, media drainage and promotional activities around the country, and pays attention to the sales recovery in the follow-up peak season.

2. Gross profit and expense side are under pressure, deducting non-net interest rate is declining. In the first three quarters, the company's gross profit margin also decreased to 40.0%, and we expect to increase the carry-over cost of shops and supporting property sales. On the expense side, the sales expense rate increased by 3.3ppt to 6.5% in the first three quarters, mainly due to the expansion of the company's marketing and publicity expenses and business expenses; the management + R & D expense rate increased by 0.6ppt to 9.4%; and the financial expense rate increased by 1.9ppt to 0.5%. Under the combined influence, the net interest rate of homing fell by 8.4ppt to 16.2% in the first three quarters.

3. Pay attention to the transformation of main business and the development of diversified business. 1) in terms of main business, the company gradually promotes digital transformation, improves the layout of live broadcast platforms such as Douyin and Taobao and multi-dimensional e-commerce platforms, and promotes online industry integration; at the same time, it further improves platforms such as Picheng Yunpan, Picheng strict selection and Picheng Logistics, and optimizes the e-commerce ecosystem. 2) in terms of business diversification, the health business has grown steadily, and the company has continued to deepen the development model of the combination of medical care and care, strengthening the quality of medical and nursing services in rehabilitation hospitals and Yihejiayuan; at the same time, the financial business has made steady progress, to broaden the financing channels for the upstream and downstream of the industry through civil finance centers and guarantee companies. Pay attention to the progress of the company's main business transformation and business structure optimization.

Profit forecast and valuation

Taking into account the slower repair of downstream demand and the intensification of market competition, the net profit for 2023-24 was cut by 14%, 13%, to 1.9 billion yuan. The current share price corresponds to the 2023-24 27Universe 26 times PUnix E. Maintain the neutral rating, based on the adjustment of earnings forecast and considering the progress of the company's business transformation, lower the target price by 7% to 4.20 yuan, corresponding to the 2% upside space of 2023-24 28max.

Risk

The competition in the industry intensifies, the progress of the transformation of the main leather industry is not as expected, and the macro environment is under pressure.