The company released the 2023 annual results announcement

23Q4 revenue was US$1,904 million, down 4.7%; net profit to mother was US$137 million, up 422.9%; revenue from 2023 was US$7.890 million, down 7.0%; net profit to mother was US$275 million, down 7.3%; by category, sports/outdoor footwear annual revenue of US$4,041 million, down 17.4%, accounting for 87%; revenue from casual shoes and outdoor sandals was US$616 million, down 24.5%; revenue from soles, accessories and other revenue was US$402 million, down 19%;

Branch channels and omnichannel revenue account for 27%, franchise stores account for 21% of revenue, Pan-micro stores account for 13% of revenue; direct-run stores and others account for 52%.

The company's 23-year gross profit margin was 24.4%, net profit margin 5.12%

In '23, the company's gross profit margin was 24.4%, up 0.57pct; net profit margin was 5.12%, up 0.47pct; sales, distribution and management rate was 18.26%, up 0.45pct;

A final dividend of HK$0.90 per share was paid in '23, with a dividend dividend rate of 73%, including a share repurchase of US$15 million.

The gross margin of the manufacturing business increased quarterly, and the results of cost reduction and efficiency were remarkable

The manufacturing business's revenue for 23 years was 5,059 billion yuan, down 18.4%, and the gross profit margin was 19.2%; quarterly, the gross margin of the manufacturing business 23Q1/Q2/Q3/Q4 was 16.8%/17.9%/19.3%/22.8%, respectively, and gross margin improved quarterly.

By region, the US region is still the main source of revenue for the manufacturing business, accounting for 27.8%; mainland China accounts for 17.7%; Europe accounts for 25.5%; and the rest of the world accounts for 29.0%.

In terms of footwear shipments, total shipments in 23 were 218 million pairs, with mainland China accounting for 12% of shipments, Vietnam accounting for 34%, Indonesia accounting for 49%, and other regions accounting for 5%.

In terms of capacity utilization, the annual capacity utilization rate for 23 was 79%, a decrease of 8 pcts in 23 years, and an increase of 6 pcts month-on-month and year-on-year in 23Q4. We sorted out the monthly revenue of Yuyuan's manufacturing business. The monthly growth rates were -25% (January 23), -6%, -21%, -25%, -11% (May 23), -24%, -20% (August 23), -29%, -17%, -10%, -2% (December 23), 12.5% in January '24, and -12.2% in February '24, respectively.

Remarkable results in cost reduction and efficiency were achieved. Expense control offset operating counterleverage, efficiency improved manufacturing business sales, distribution and administrative rates increased 0.8 pct year over year, and 23Q4 decreased 1.4 pct month-on-month compared to 23Q3;

Among them, Baosheng's retail business streamlines and upgrades the physical store network, enhances human efficiency, increases sales leverage, and actively promotes rent control and cost reduction and efficiency.

Baosheng's net interest rate increased by 1.5 pct year on year, and discounts improved year on year

Baosheng Retail's revenue for 23 years was US$2,831 million, with a gross profit margin of 33.7%, a decrease of 4.0pct; net profit increased 403% and net interest rate increased by 1.5pct; the company strictly controlled discounts, and the discount ratio improved year-on-year, especially in 23Q4 and 23Q4.

Baosheng opens up omni-channel operations and expands access to the sea

Baosheng is one of the largest retailers and sports service providers for world-renowned sports brands in Greater China. Baosheng adopted refined operations, with 3,523 direct-run stores, a decrease of 13.9%, accounting for 73% of revenue, 3506 single-product stores and 17 multi-product stores; omni-channel includes B2B and B2C, accounting for 27% of the total; among them, the public domain includes third-party platforms (Tmall, JD, Vipshop, etc.), and the contribution of using inventory sharing mechanisms is increasing day by day. The private domain includes the Panwei store ecosystem and membership services. Panwei stores have a stable foundation with higher conversion rates, return rates and regular seasonal sales. In '23, Panwei stores contributed 20.9% of offline direct retail sales (accounting for 13.4% of the total), and all inventory coverage across regions was opened.

Through strategic alliances between Inventory Connect and business partners, Baosheng improves management efficiency and cash flow through efficient inventory sharing, product sharing platforms, and personal digital assistants with brand partners. The inventory level also decreased by 22.5%, the proportion of old inventory was less than 8%, customer order volume remained flat year on year, and customer unit price increased year on year.

Refined retail strategies streamline and upgrade the physical store network and enhance overall efficiency. The average store's monthly yield and floor efficiency both increased significantly by more than double digits over the same period last year; the average store area increased by the number of units, and the total sales area decreased by the number of units;

Baosheng accelerated digital transformation, and Pan-WeChat stores grew strongly. Pan-WeChat store revenue also increased by 40%, accounting for 13.4% of total revenue, contributing 20.9% to offline direct marketing sales.

Adjust profit forecasts to maintain a “buy” rating

Along with the recovery of offline traffic and the continued removal of brands, the company's manufacturing business and retail business are recovering steadily; digital transformation is progressing rapidly, and smart factories enable production to meet flexible needs with short delivery times; Baosheng is a leading sportswear and footwear retailer and dealer in Greater China, using the YYSports WeChat Mini Program to implement an EXP membership program to provide diversified sports service content. Considering the increase in downstream orders, which may still take time, we slightly adjust our 24-25 profit forecast. We expect the company's 24-26 revenue to be US$86.45/96.45/US$10.935 billion (US$93.12/10.397 billion US dollars, respectively, 24-25 years ago), net profit to mother of US$2.96/3.48/ US$402/402 million, respectively (24-25 years ago values were US$34/396 million, respectively), EPS was 0.18/0.22/0.25/share, respectively, and the corresponding PE would be 8 /7/6X

Risk warning: brand customer concentration risk; increased risk in the competitive market environment; risk associated with cross-market comparison; legal compliance and corporate governance risks; IT and data security risks; economic and social environment risks.