Overview of events

In the first three quarters of 2023, the Company's income/net profit attributable to parent/net profit deducted from non-parent/net operating cash flow were 18.46/4.14/3.53/4.96 million yuan respectively, with a year-on-year growth of 7.37%/10.17%/10.76%/36.03%. The net profit deducted from non-parent was lower than that of parent mainly due to government subsidies and investment income, and the higher operating cash flow than net profit attributable to parent was mainly due to the increase of asset impairment losses. Among them, Q3 single-quarter company income/net profit attributable to parent/net profit deducted from non-parent were 5.98/1.07/1.03 million yuan respectively, down 3.28%/13.54%/14.52% year-on-year.

On September 27, Ms. Ma Ruimin, Chairman and General Manager of the Company, planned to increase the total amount of RMB 15 million yuan within 6 months with free funds. The price of increase will not set a price range.

On September 28, the Company issued a draft equity incentive plan to grant 1.39 million stock options. The total number of incentive objects authorized for the first time in this incentive plan is 151, and the exercise conditions are that one of the following two conditions shall be met respectively from 2023 to 2024:(1) the income in 2023 shall not be less than 2.64 billion yuan, and the accumulated income from 2023 to 2024 shall not be less than 5.40 billion yuan;(2) The net profit attributable to the parent company in 2023 shall not be less than 460 million yuan, and the accumulated net profit attributable to the parent company from 2023 to 2024 shall not be less than 980 million yuan. The exercise price is RMB 12.32 Yuan, and the total amortized cost of this incentive plan is RMB 4,846,800 Yuan, which is estimated to be RMB 59.30/3,180,000/1,073,800 Yuan respectively in 23/24/25 years.

Analysis and judgment:

According to brands, DZ has the highest growth rate. (1) In terms of brand, DA and DM decreased greatly in Q3 2023. DA/DM/DZ/RA/other income in Q3 2023 was RMB 3.33/0.31/2.27/0.07/0.01 billion yuan respectively, with a year-on-year growth of-8.78%/-18.41%/8.01%/39.04%/-4.86%. (2) From the perspective of endogenesis and extension, the number of DA/DM/DZ/RA stores as of Q3 is 575/22/469/20, the net closed stores of DA/DM/DZ/RA in Q3 are 15/2/-4/-2, and the number of stores at the end of 23Q3 decreases by 10.06%/48.94%/3.93%/NA compared with 22Q3. From this, it is estimated that the single-season shop effect of Q3DA/DM/DZ/RA is 57.83/139.87/48.45/327,700 yuan, with a year-on-year increase of 0.26%/44.64%/9.39%/4.28%.

By channel, online growth rate is the highest. Q3 direct sales/distribution/e-commerce/other income was 2.29/2.86/0.82/0.01 billion yuan respectively, down 8.96%/5.73%/-31.51%/4.86% year-on-year. In the first three quarters of 23 years, the direct sales/distribution/e-commerce/other income was 7.91/7.73/2.79/0.03 billion yuan respectively, with a year-on-year growth of 9.31%/-1.19%/32.32%/19.88%. 23Q3 Company closed 11 stores to 1086 stores (The net decrease of direct sales/distribution is 5/6 to 292/794). Compared with the end of 22Q3, the number of direct sales/franchised stores decreased by 12.57%/3.99%. The shipment of Q3 single-season direct sales stores/franchised single stores was 78.56/359,600 yuan respectively, with a year-on-year growth of 4.1%/-1.8%. We expect that the company will close stores with poor operation efficiency, and the store efficiency is expected to be gradually improved in the future.

The increase in gross profit margin of e-commerce and the decrease in net profit margin of parent company were mainly due to the increase in expense ratio and asset impairment loss. 23Q3 gross profit margin/parent net profit margin was 72.86/17.86%, up 0.48/-2.12PCT year-on-year. The increase of gross profit margin was mainly due to the increase of e-commerce gross profit margin, and the decrease of parent net profit margin was mainly due to the increase of asset impairment loss. 1) By brand, DA/DM/DZ/RA/other gross profit margins were 74.04%/75.37%/71.03%/73.35%/23.02% respectively, with year-on-year growth of 1.06/-1.55/0.28/0.71/-6.41PCT ; 2) According to different channels, the gross profit margin of direct sales/distribution/e-commerce/others is 72.28%/78.29%/77.18%/67.46% respectively, with a year-on-year growth of 0.81/0.26/2.83/-1.70PCT. 3) From the perspective of expense ratio, the sales/management/R & D/financial expense ratio of 23Q3 is 36.78%/7.83%/3.08%/-0.74%, which is 0.01/0.82/0.04/0.18PCT higher than that of the same period last year. Investment income/income decreased by 0.79PCT year-on-year, asset impairment loss/income increased by 2.24PCT year-on-year, income tax/income decreased by 0.79PCT year-on-year.

Inventory amount and turnover days increased. At the end of Q3, the inventory of the Company was RMB 478 million yuan, with a year-on-year increase of 22.34% and a month-on-month increase of 12.20%. The inventory turnover days were 248 days, an increase of 27 days compared with the same period last year. Accounts receivable amounted to RMB 51 million yuan, up 6.71% year-on-year, and the turnover days of accounts receivable were 8 days, unchanged year-on-year. Accounts payable amounted to RMB 75 million yuan, an increase of 4.81% year-on-year, and the turnover days of accounts payable were 48 days, an increase of 6 days compared with the same period last year.

Investment suggestion

According to our analysis, the medium-and long-term growth space of the company in the future lies in: 1) the new brand positioning is fast and fashionable, which opens up more growth space than the traditional high-end women's clothing industry;2) the main brand still has room for improvement of store effect;3) the brand RA in the cultivation period gradually matures and brings improvement of store effect, which is expected to bring new profit growth points;4) the new lifestyle brand d other day hopes to gradually contribute increment. Adjust the previous profit forecast, adjust the revenue of 23/24/25 from 26.51/30.1/34.19 billion yuan to 26.46/30.37/34.4 billion yuan; reduce the net profit forecast of 23/24/25 from 6.31/7.55/8.67 million yuan to 5.35/6.42/7.69 million yuan; Corresponding to 23/24/25 years EPS 1.31/1.57/1.80 yuan to 1.11/1.33/1.60 yuan, October 31,2023 closing price 14.06 yuan corresponding to 23/24/25 years PE 11/9/8X respectively, maintain "buy" rating.

Risk hint

Market competition is fierce; business performance is fluctuated; epidemic uncertainty; systemic risk.