Key points of investment

The company released its report for the third quarter of 2023. ① The 2023Q1-3 company achieved operating income/net profit from net income from net income of net income of 1,556/0.39/028 billion yuan, or -6.66%/-15.31%/-24.87%, respectively. Among them, the decrease in operating income was mainly due to a decrease in sportswear foreign trade and other business and a decrease in the blank business, and the decrease in net profit was mainly due to a decrease in income from projects invested by the company in Wuxi Red Road Venture Capital (Limited Partnership). ② In the single quarter of 2023Q3, the company achieved operating income/net profit from motherhood and net profit from net income of 4.60/-0.08/-0.09 billion yuan, compared with -15.02%/-42.82%/-8.53% year-on-year respectively.

The company's gross margin maintained a growing trend, and the net profit margin declined slightly. ① In the first three quarters of 2023, the company achieved gross marginal profit/net interest rate/ net profit margin after deduction of net profit of 37.08%/2.52%/1.78%, with a year-on-year ratio of +2.90pct/-0.26pct/-0.43pct, respectively. ② In the single quarter of 2023Q3, the company achieved gross marginal profit/net interest rate/ net interest rate after deducting non-return parent net profit ratio of 36.78%/-1.68%/-2.04%, respectively +6.17pct/-0.68pct/-0.44pct year-on-year. 2023Q3 The company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio in a single quarter were 27.20%/9.52%/1.14%/0.44%, respectively, with a year-on-year ratio of +2.04pct/+1.83pct/+0.11pct/+0.19pct.

The company's direct channel stores continue to be optimized and updated, which is conducive to enhancing the terminal brand image. ① 2023Q1-3, the company Hodo menswear brand/OEM processed clothing achieved revenue of 1,031/363 billion yuan respectively, -4.49%/-10.29% over the same period last year. ② 2023Q1-3, Hodo menswear direct management/franchise channels achieved revenue of 407/285 million yuan respectively, and offline direct-operated/franchise stores were +36/-3 compared to the end of 2022, of which 28 franchise stores were converted to direct-run stores. The company gradually expands the “classic and comfortable” brand impression and creates stronger brand potential and influence through channels, store landing, and multiple strong attacks.

In September 2023, Hongdou Menswear was invited to appear at “London Fashion Week”, one of the four famous international fashion weeks, interpreting Oriental aesthetics with a comfortable combination of simplicity, elegance and texture. At the same time, the company continues to firmly seize popular items, and the red bean zero feeling comfortable shirt continues to be popular. As a popular national trend brand, the company understands fashion trends and will continue to create comfortable menswear products with differentiated competitive advantages.

Profit forecast: The company continues to carry out product optimization iterations, enhance brand influence, and lead the trend of national brand comfortable menswear. On the channel side, the company actively upgrades the layout of offline channels and upgrades and optimizes offline direct-run stores.

We adjusted the company's net profit from 2023-2025 to 0.63/0.86/116 million yuan, +320.5%/+35.5%/+35.3% year-on-year, corresponding to the closing price on November 2, 2023. PE was 106.2X/78.4X/57.9X respectively, maintaining the “increased holdings” rating.

Risk warning: The recovery of the consumption environment falls short of expectations, and the epidemic has repeatedly affected terminal retail.