The undervaluation in the industry comes from poor market perception. Retailers with alpha valuations can be improved, maintaining “buy” ratings, and are still in the phase of fluctuating and recovering after being affected by the BCI incident and the pandemic. It is generally believed that channel vendors: (1) if they don't master the brand will be replaced; (2) let brands pressure goods; (3) there are no barriers to the business model. Earning “hard money” is not attractive for growth. Corresponding to this, we believe: (1) At the stage where international/domestic brands are pursuing single store growth, dealers with efficient retail operation capabilities are scarce resources. International brand single product stores = DTC. Domestic brands require shopping center resources upward and professional retail experience downward. (2) During the pandemic, retailers used international brand packages (subsidies+rebates to resolve market competition, order cutting+recycling to solve market supply), and gross margin increased steadily. (3) Barriers are reflected in the refinement of management, which is reflected in the dimensions of scale, profit, and operation. Considering short-term retail environment fluctuations, we lowered our profit forecast. We expect FY2024-2026 net profit to be 22.9/26.1/29.1 billion yuan (previously 23.1/27.2/3.14 billion yuan), corresponding EPS 0.4/0.5 yuan, the current stock price corresponding to PE is 13.0/11.3/10.0 times, the company's operating indicators have improved across the board, international brands have recovered or exceeded expectations, and new brands support a new round of store expansion. They have both growth and high dividends, and maintain a “buy” rating.
Judging from the evolution of barriers and competitive patterns, Taobo α stems from digital & refined management. Future share can increase industry growth from scale expansion to quality and efficiency. Taobo's refined barriers are reflected in: digitally driven membership systems have added stickiness and value, intelligent store management & continuous organizational optimization, product circulation has accurate single store and intelligent store adjustment mechanisms, leading large stores and efficient customs opening and global retail. Efficiency indicators are used to reflect differences in refinement capabilities, and it is estimated that Taobo's average monthly store effectiveness/floor efficiency is ahead of peers, rental and sales ratios have declined, and human efficiency has improved.
It is expected that under the oligarchy pattern, the strong will prosper, and the first to fourth tier will be concentrated at the top, and the company's market share is expected to increase further.
Growth: The recovery of international brands in Greater China, with new brands supporting a new round of store expansion (1) Continued improvement in revenue and recovery of online shares of international brands in Greater China. Among them, Adidas recovered or exceeded expectations: products & supply chain & marketing led to positive business indicators, monthly recovery of online channels & offline store efficiency had room for improvement, the growth gap between backward and advanced brands in Taobo's operations narrowed, and adidas' futures orders rose steadily in FY2025. (2) Continuing to cooperate with new brands, adding Li Ning/Hoka/Kailoshi collaborations one after another. Under the light package, FY2025 is expected to restart and expand. Discounts have maintained an improving trend since FY2024. FY2024Q3 is leading the industry, and direct-managed store area has improved month-on-month, excluding Neo, which affects the net opening of stores month-on-month.
ROE: The average ROE in the industry before the pandemic. Manufacturers > retailers > brands. In the medium term, Taobo ROE can improve retailers to make up for the shortcomings of low profits with high turnover, and Taobo ROE leads the industry. ROE improvement path: Introducing turnover: With the recovery of international brands and global integration development, inventory and total asset turnover are expected to increase. Second profit improvement: In addition to long-term efficiency improvements, profits in the sinking market, which are increasingly valued by brands, are better than private sector input and output with high levels of low - medium orders, and high growth than the public sector. FY2024H1 Taobo ROE has improved and is expected to gradually increase.
Risk warning: Industry demand is slowing down, efficiency improvements fall short of expectations, and store expansion falls short of expectations.