Event: The company released its 2023 three-quarter report. 23Q1-Q3 achieved operating income of 2,066 billion yuan, +18.33% year-on-year; net profit of 136 million yuan, +67.1% year-on-year.
Comment:
Multiple brands are making more efforts, and the main brand is growing steadily. By brand, the revenue of the 23Q1-Q3 Ellassay/Laurel/Edhardy/IRO/Self-Portrait brand increased by 10.3%/35.3%/0.6%/18.1%/51%, respectively. Increased store efficiency and number of stores jointly drove revenue growth. In 23Q3, the revenue of brands above the same quarter increased by 22%/31%/-8%/29%/20%, respectively. Ellassay's revenue growth is expected to increase due to the low base of franchise channels in the same period last year; the decline in Ed brand revenue is mainly due to the company's active contraction of live streaming channels with high discounts; the slowdown in S-P brand growth is mainly due to the high online base in the same period last year; all other brands maintained relatively rapid growth. In terms of the number of stores, the five major brands had a net opening of 8/9/2/14/12 stores during the period. Looking at a single quarter, the 23Q3 company's revenue and net profit were +20.6%/-14.4% respectively. Revenue maintained impressive performance. The decline in profit was mainly due to certain losses due to fluctuations in the overseas economic environment and a marked decline in investment income, but domestic business profit increased rapidly year-on-year.
Offline growth is faster than online, maintaining an active and steady pace of opening stores. Looking at each channel, 23 Q1-Q3 direct business/distribution revenue increased by 18.7%/17.3% respectively, and offline/online revenue increased by 20%/7% respectively. Offline passenger flow resumed after the epidemic. At the same time, the company actively reduced low price discount channels, and the offline growth rate was faster than online.
Judging from the number of stores, there were a net opening of 39/6 directly/franchise stores respectively. The company maintained a positive pace of opening stores. Along with the recovery in consumption, the efficiency of new stores gradually increased, driving steady growth in domestic business.
The gross margin of various channels improved, and investment income and overseas business dragged down the net profit margin. Profitability:
The gross margin of 2023Q1-Q3 company was +2.8pcts to 66.9%, and direct-operation/franchise/online gross margin increased by 3.4/1.9/0.7 pcts respectively, mainly due to better discount control and an increase in the share of new product sales. Sales/management/R&D/finance expense ratios were -0.4/-1/+0.02/+0.5pct to 45.4%/8.4%/2.5%/1.1%, respectively; net interest rate +2.2pcts to 8.6%. Looking at a single quarter, 23Q3 gross margin was +1pct to 65.6% year on year; investment income was 1.38 million yuan, a decrease of 23.18 million yuan, mainly due to the amortization of payment expenses for Baqiu Shangmei shares of the participating company; net profit margin was -2.1pct to 5.5% yoy due to reduced investment income and losses from overseas business. Inventory: Inventory at the end of the period increased by 2.3% to 780 million yuan, remaining stable.
Investment suggestions: The company's multiple brands blossomed more, brand growth was impressive during the growth period, and improvements in gross margin and cost ratio promoted increased profitability. Considering that overseas business is dragging down overall performance, we have lowered our profit forecast. It is estimated that the company's net profit for 23/24/25 will be 2.2/3.4/4.2 billion yuan (original forecast 2.7/3.6/4.4 billion yuan), corresponding to the current market value PE of 17/11/9 times, maintaining the “buy” rating.
Risk warning: The recovery in consumption fell short of expectations, the impact of overseas inflation continued, and the decline in store efficiency fell short of expectations.