The company announced its 2023 results announcement on March 13, 2024. It achieved annual revenue of 8.42 billion yuan, +21% year-on-year, and achieved net profit of 960 million yuan, or +28.7% year-on-year. Among them, 23H2 achieved revenue of 4.11 billion yuan, +24.3% year-on-year, and achieved net profit of 260 million yuan to mother, +31.5% year-on-year. The year-end dividend was HK20.4 HK cents per share, with a full year dividend payout ratio of 40.2%.
Adult clothing sales have performed well, and children's clothing is growing strongly. By business, in 2023, the company achieved revenue of 63.3/19.6/130 million yuan respectively, with a year-on-year increase of 17.4%/35.7%/8%, accounting for 75%/23%/2%. 1) Sales of adult footwear and clothing increased 19%/9% respectively in 23 years, and wholesale unit prices increased 3%/0% respectively. The running, basketball, and sports lifestyle sectors have blossomed more to meet the differentiated needs of consumers. 2) The sales volume/wholesale unit price of children's clothing increased by 31%/4%, respectively. The combination of multiple categories and outstanding functional advantages led to an increase in volume.
Offline channels continue to be optimized, and the differentiation of exclusive products helps e-commerce grow. Offline, 1) Adult clothing: As of the end of '23, the company had 6,994 sales outlets worldwide, with +254 to 5,734 sales outlets in mainland China, with supermarket department stores/street stores accounting for 31.7%/68.3%; 9th generation stores/8 and 8.5 generations/other stores accounted for 64.5%/25.5%/10%; the average area of a single store was +9 square meters to 138 square meters at the end of '22, and the proportion of supermarket department store outlets increased, and new business formats such as Olay developed steadily, and offline channel optimization led to good retail terminal growth. 2) Children's clothing:
By the end of '23, the company had opened a total of 2,545 sales outlets in mainland China, +257 at the end of '22, of which supermarkets and department stores/ street stores accounted for 57.3%/42.7%, while the share of children's independent stores increased by 3.3 pct to 85.3% at the end of '22. The average area of a single store increased by 11 square meters to 103 square meters compared to the end of '22. On the online side, the company achieved e-commerce revenue of 2.33 billion yuan in '23, +38% year-on-year, accounting for an increase of 3.4 pct to 27.6% in the group's business. The company's online and offline products are divided, with online exclusive sales accounting for 87.3%. Differentiation and consolidation of e-commerce advantages led to strong sales growth, and sales volume remained at 30% or above in the fourth quarter of the year.
Profitability continues to be optimized, and inventory is healthy. In terms of profit, the company's gross margin for 23 years was 41.1%, of which the gross margin for adult clothing was 41.4% (42.4%/40.5%/34.7% for shoes/clothes/accessories, respectively), and the gross margin for children increased significantly by 0.9 pct to 41.8% compared to '22. The company's operating margin and net profit margin increased by 1 Pct/ 0.7 Pct/ to 16.4%/11.4% respectively in '23. In terms of operation, the company's inventory for 23 years was 1.35 billion yuan, +14.2% over the same period, and 92.9% of the inventory was manufactured products, mainly from new products in the winter of 23 and 24; the number of inventory turnover days was +2 to 93 days, mainly to prepare goods for e-commerce business growth.
Profit prediction and investment suggestions: The company continuously improves its product strength and operating efficiency on the basis of high-quality channel store expansion, and brand potential; moreover, children's clothing contributes second growth momentum, and future development can be expected. We expect the company's net profit to reach 11.51/13.54/1,564 billion yuan from 2024 to 2026, respectively, with a year-on-year increase of 19.7%/17.6%/15.5%, respectively. The current stock price corresponds to 8 times PE in 2024, maintaining a “buy” rating.
Risk warning: New product sales fall short of expectations, increased industry competition, drastic cost increases, supply of raw materials is blocked, brand image is damaged, etc.