Incident Overview
The company released 23 performance forecasts. The expected revenue for 2023 is 28.74-29.94/1.00-1.30/0.76-106 billion yuan, up 20%-25%/388.95%-535.64%/1428%-2032% year-on-year. The performance is lower than market expectations. Our analysis is mainly affected by IRO's overseas and accrued goodwill impairment, while domestic net profit has basically recovered to the level of 21. The company's IRO Paris brand's overseas business performance was greatly impacted. After deducting goodwill impairment of 90-1 million yuan, plus goodwill impairment losses, the company's net profit for 23 years was about 2-230 million yuan, an increase of 877.91% to 1024.60% over the previous year.
23Q4 revenue/net profit to mothers/net profit deducted from /8.08-9.28/-0.36 to -0.06/-0.51 to -0.21 billion yuan, respectively, up 24.50%-42.95%/36.84%-89.47%/16.39%-65.57% year-on-year.
Analytical judgment:
Domestic business grew steadily, and profits returned to 21-year levels. On a quarterly basis, net interest rates for 23Q1-4 were 7.1%/8.82%/3.86%/-2.7%, respectively.
1) The company's revenue in '23 increased 22%-27% year-on-year, and all brands achieved outstanding revenue growth. In particular, Self-Portrait, Laurèl, and IRO Paris had outstanding performance in the domestic market; 2) By the end of '23, 503/159 companies were direct-operated/franchised and 4/-11 companies were net in 23Q4; 3) The domestic business environment has recovered, the cost ratio has been optimized, and the net profit from domestic business operations is expected to return to the level of '21.
Investment advice
According to our analysis, (1) in the short term, the company continued to buck the trend and open stores during the three years of the pandemic. Domestic growth is still expected to be achieved in 24 years, but overseas business may still be under pressure; (2) in the medium to long term, SP, LAUREL, and IRO are still strong in domestic growth. More goodwill impairment has been calculated this year, and the company's net interest rate still has a lot of room for repair. Taking into account that the recovery in overseas markets fell short of expectations, the 23/24/25 revenue forecast was adjusted to $2,833/32.00/$3.466 billion; net profit attributable to mother for 23/24/25 was reduced by 2.05/3.35/423 million yuan to $113/2.57/319 million, corresponding to a reduction in EPS of $0.56/0.91/1.15 to $0.31/0.70/0.86 in 23/24/25, January 30, 2024 The closing price of 8.15 yuan corresponds to 23/24/25PE, which is 27/12/9X, respectively, maintaining a “buy” rating.
Risk warning
There is a risk that the fee rate remains high, the risk of opening a store that falls short of expectations. In September 2023, director Hu Yongmei was issued a warning letter by the Shenzhen Securities Regulatory Bureau due to illegal transactions, a systemic risk.