Matters:
2023Q4 achieved revenue of 3.841 billion yuan, up 54% month-on-month, 1.3% month-on-month increase, gross profit of 1,657 billion yuan, 4.7% month-on-month increase, gross margin of 43.1% (+3.1 pct; month-on-month +1.3 pct), adjusted net profit of 661 million yuan, 77% increase, 2.9% month-on-month, and adjusted net interest rate of 17.2% (+2 pct, +0.3 pct month-on-month). Excluding exchange rate effects, the adjusted net interest rate for the quarter was 17.4%.
Commentary:
At the end of the year 23, the company's total number of stores reached 6413, up 973 year-on-year, 298 month-on-month, reaching 3,926 domestic brands, 601 year-on-year increase, 124 month-on-month growth, 2,487 overseas brands, 372 year-on-year growth, 174 month-on-month growth. The number of TOPTOY stores reached 148, up 31 year-on-year, and 26 month-on-month. The goal of future store expansion is to maintain a net opening of 900-1100 new stores in 2024-2028. It also maintains a compound annual revenue growth rate of at least 20%.
Overseas market revenue was 1,494 billion yuan, up 51% year on year, accounting for 39% of revenue. The overseas direct sales market grew at an impressive rate. The overseas direct sales market grew 86%, the agent market grew 26%, and the overseas direct sales market maintained a year-on-year increase of more than 80% for three consecutive quarters. By market, the North American market increased 120% year-on-year, the Latin American market grew 46%, the Asian (excluding China) market grew 25%, and the European market grew 66%.
Looking at the entire 23 calendar year, overseas revenue reached 4.705 billion yuan (accounting for 34% of total revenue), a year-on-year increase of 47%, the direct sales market increased by 83%, and the agency market grew by 24%. Subregionally, North America grew by 128%, Latin America grew by 30%, Asia (excluding China) grew by 29%, and Europe grew by 74%.
Domestic business continued to maintain high-quality growth. In 23Q4, domestic revenue was 2,347 billion yuan, up 56% year on year, offline store GMV increased 66% year on year, same store sales increased 32% year on year. From January to January 2024, Mingchuang's domestic offline store GMV increased 13% year on year, and offline same-store sales increased 10% during the Spring Festival, continuing to grow on the basis of full offline recovery last year. In terms of store expansion, there were a net increase of 124 stores this quarter, and the number of stores reached 3,926 at the end of the period.
TOP TOY's revenue for the quarter reached 188 million yuan, a year-on-year increase of 90%. Among them, own products accounted for 35%, third-party products accounted for 65%, and offline stores reached 148 (14 direct-run stores, 134 franchised stores), with a net increase of 26 in the quarter.
The gross margin for the quarter was 43.1% (+3.1 pct year over year; +1.3 pct month over month). The increase in gross margin was mainly due to product optimization in overseas markets, an increase in the share of overseas direct sales markets, and product portfolio adjustments under the brand upgrade strategy.
The sales expense ratio was 18%, +2pcts month-on-month, mainly due to increased personnel, logistics, rent, etc. expenses due to the opening of stores, as well as an increase in promotion and marketing expenses due to the opening of new overseas stores. The management fee rate was 5% (-0.8 pcts year-on-year, +0.4 pcts month-on-month), which remained stable.
Investment advice: North American stores performed well after switching to self-operation, and gross margin continued to rise. Looking at the previous fiscal year, we raised our EPS forecast for the 2024-2026 fiscal year to 2.06 yuan, 2.55 yuan, and 3.18 yuan (previous value was 1.88 yuan/2.32 yuan/2.89 yuan), and the corresponding valuation was 17X/13X/11X. Referring to similar overseas business formats, select Japan's Don Quixote and US Dale supermarkets, dollar tree, Walmart, and five below as comparable companies, 2024- The average valuation forecast for 2025 is 24X, 22X. Considering that Mingchuang overseas, especially the direct market, is still in a high growth stage, the domestic brand upgrade plan continues to advance, and there is still room for opening stores, TOP TOY's profitability is expected to be further optimized, giving it a 20-fold valuation for FY2025, corresponding to a target price of HK$55.69, maintaining a “recommended” rating.
Risk warning: Market competition is intensifying, the consumer industry is weak, franchisees' willingness to open stores falls short of expectations, raw material costs are rising, and overseas macroeconomics are declining.