3Q23 performance is in line with our expectations
The company announced 3Q23 results: revenue rose 32% to 370 million yuan compared with the same period last year, while its net profit reversed to 24.47 million yuan, compared with a loss of 9.63 million yuan in the same period last year. After deducting non-return, the net profit was 22.23 million yuan, compared with a loss of 13.36 million yuan in the same period last year. The performance is in line with our expectations.
3Q23 gross profit margin recovered well from a low base last year. The company's 3Q23 gross profit margin increased to 42.1% year-on-year. In the same period last year, the company took the initiative to clear inventory in 3Q22 because it was about to end its cooperation with the Discovery Expedition brand, while actively promoting the optimization of Pathfinder brand inventory, resulting in a low base gross profit margin. Since the beginning of this year, with the improvement of the retail environment and the active implementation of price control, sales discounts have gradually improved.
Operating leverage and management optimization led to a decline in the rate of expenses. 3Q23's sales expense rate fell 10.3ppt to 20.9% year-on-year, which we think is mainly due to operating leverage, optimization of direct stores, and increased share of joint venture business. The rate of administrative expenses decreased by 0.6ppt to 11.0% compared with the same period last year, which we believe is mainly due to the company's better cost control and business optimization. During the quarter, net profit reversed to 24.47 million yuan compared with the same period last year, and net profit margin increased by 9.9ppt to 6.5% compared with the same period last year. The net operating cash outflow of 3Q23 narrowed to 19.84 million yuan compared with the same period last year (85.7 million yuan for 3Q22).
The support policy for outdoor sports continues to increase. On October 24, the National Development and Reform Commission, together with the State General Administration of Sports and other departments, issued the Action Plan for promoting the Construction of Outdoor Sports facilities and Services (2023-2025), proposing to promote the construction of outdoor sports facilities and the promotion of services, expand sports and leisure consumption, promote the high-quality development of outdoor sports industry, and better meet the growing needs of the people for outdoor sports. The Action Plan also proposes to promote the total scale of the outdoor sports industry to 3 trillion yuan by 2025. We believe that as residents pay more attention to sports health, outdoor sports consumption is increasingly becoming a new consumption trend, superimposed by the government's attention to national fitness, the outdoor industry is expected to continue to achieve high-quality development.
Trend of development
The epidemic in October-December 2022 brought a low base of industry sales, with clothing, shoes, hats and knitwear falling 7.5%, 15.6% and 12.5% year-on-year. As the retail environment improves and the company merges its G2Touch this year, we expect the company's 4Q23 results to continue to grow well from a low base.
Profit forecast and valuation
Maintain the company's 24-year EPS forecast of 0.14 EPS 0.18 yuan, and the current share price corresponds to 4.7 times the 24-year Pamp S, maintaining a neutral rating. Maintain the outdoor / chip business 6.3amp 7.0 times the 2023 Pamp S, and give a 14% valuation discount to the multi-business model. Taken together, we maintain the target price of 8.77 yuan based on the segment summation valuation method, with 17% upside space.
Risk
The terminal retail environment is not as expected, the competition in the industry is intensified, and the development of new business is not as expected.