Description of the event
On March 13, the company announced its 2023 results. In 2023, the company achieved revenue of 8.423 billion yuan, a year-on-year increase of 21.0%, and achieved net profit of 961 million yuan to mother, an increase of 28.7% over the previous year. The company paid a final dividend of 13.9 HK cents/share, combined with an interim dividend of 6.5 HK cents/share. The company paid 20.4 HK cents/share in 2023, with a dividend payout rate of 40.2% for the full year.
Incident reviews
Adhering to the “professional, youthful and international” brand positioning, the company's operations showed a strong growth trend in 2023. In 2023, the company achieved revenue of 8.423 billion yuan, a year-on-year increase of 21.0%. Among them, 2023H1 and 2023H2 achieved revenue of 43.12 billion yuan and 4.112 billion yuan respectively, up 18.0% and 24.3% year-on-year. In 2023, the company achieved net profit of 961 million yuan, up 28.7% year on year. Among them, 2023H1 and 2023H2 achieved net profit of 704 million yuan and 258 million yuan respectively, up 27.7% and 31.4% year on year.
E-commerce channels led the growth rate in 2023, and the number of offline channel stores and the area of a single store increased. Looking at each channel, we split the company's business into three parts, namely e-commerce channels, domestic offline stores, and overseas markets. 1) E-commerce channels achieved revenue of 2,326 billion yuan in 2023, a year-on-year increase of 38.0%, accounting for 27.6% of the company's revenue.
The company's e-commerce business maintained an increase of 30% or more in the four quarters of 2023, with online exclusive products accounting for 87.3%, effectively separating products from offline stores. 2) Domestic offline stores achieved revenue of 5.912 billion yuan in 2023, a year-on-year increase of 14.8%. By the end of 2023, 361 major brand domestic stores had a net opening of 254 to 5,734, with an average single store area of 9 square meters to 138 square meters; 361 degree children's clothing brand stores had a net opening of 257 to 2,545, and the average single store area increased by 11 square meters to 103 square meters year-on-year. 3) Overseas markets, achieved revenue of 185 million yuan in 2023, an increase of 50.1% over the previous year, accounting for 2.2% of the company's revenue. By the end of 2023, the company had 1,260 sales outlets in overseas markets.
The children's clothing business continues to grow rapidly, and major basketball resources enhance the influence of basketball products. By business, 1) The children's clothing business achieved revenue of 1,958 billion yuan in 2023, an increase of 35.7% over the previous year, accounting for 23.2% of the company's revenue.
2) The adult clothing business achieved revenue of 6.334 billion yuan in 2023, an increase of 17.4% over the previous year. Among them, footwear, clothing and accessories achieved revenue of 35.10, 26.87, and 137 million yuan respectively, with year-on-year increases of 23.0%, 9.8%, and 43.0% year-on-year.
By category, in 2023, sales of basketball products, running products, and sports lifestyle products accounted for about 9%, 46%, and 43%. Sales increased by more than 40%, nearly 20%, and more than 20% year-on-year. The company's basketball category continues to increase its resources. It has cooperated with NBA players Nikola Jokic, Aron Gordon, Spencer Dinwiddie, Kentavios Cardville-Pope, and its influence in the basketball field continues to grow.
The company's gross margin increased steadily in 2023, and the management expense ratio was further optimized. In terms of profitability, in 2023, the company's gross margin increased by 0.6 pct to 41.1% year on year. Among them, the gross margin of the children's business increased by 0.9 pct, mainly due to increased wholesale sales prices, product portfolio upgrades, and e-commerce platform sales. In terms of cost ratio, in 2023, the company's sales expense ratio increased by 1.5 pct to 22.1% year on year. Among them, advertising and promotion expenses increased 1.3 pct to 12.7% year on year, e-commerce related sales expenses increased 0.4 pct to 4.7% year on year; management expenses rate (including R&D) fell 0.3 pct to 7.5% year on year, and R&D expenses rate decreased 0.1 pct to 3.7% year on year. In 2023, the company's operating profit margin increased by 1.0 pct to 16.4% year on year, and net profit margin to mother increased 0.7 pct to 11.4% year on year. In terms of inventory, as of the end of 2023, the company had inventory of 1,350 billion yuan, and the number of inventory turnover days was 93 days, an increase of 2 days over the previous year. In terms of cash flow from operating activities, in 2023, the company's net cash inflow from operating activities was 408 million yuan, an increase of 7.2% over the previous year.
Investment advice
The company focuses on the mass sports market and adheres to the “professional, youthful and international” brand positioning. With cost-effective sports products and professional sports event sponsorship, the brand influence continues to increase. In 2023, the company achieved rapid growth in revenue scale and steady rise in profit levels. We expect that in the first quarter of this year, the company's offline channel traffic is expected to achieve medium to double digit growth, and e-commerce channel traffic is expected to grow by more than 20%, continuing the beautiful terminal performance. The company's 2024-2026 revenue is expected to be 100.40, 116.28, and 13.370 billion yuan, up 19.2%, 15.0% year on year; net profit due to mother is 11.52, 13.48, and 1,548 billion yuan, up 19.9% year on year. The closing price on March 13 corresponds to 7.5, 6.4, and 5.5 times the company's 2024-2026 PE, maintaining a “buy-B” rating.
Risk warning
Competition in the mass sports market intensified; e-commerce channel growth fell short of expectations; raw material prices fluctuated sharply.