Incidents:
The company released its 2023 annual report. In 2023, revenue increased 21% year on year to 8.42 billion yuan, and net profit increased 28.7% year on year to 960 million yuan.
Comment:
Product brands have been upgraded in many ways, and overall growth has been achieved relatively rapidly. In 2023, 361 adult income increased 19.7% year over year to 6.46 billion yuan. On the product side, the company's top products such as Feilan 3 and Feibiao Future drive the company's core competitiveness; on the brand side, Asian Games sponsorship, signing contracts, and continuous hosting of free events have effectively amplified the brand's volume. The 361-degree children maintained a relatively rapid growth rate, and their income increased 35.7% year-on-year to 1.96 billion yuan during the period.
The channel continues to expand, and the store image continues to upgrade. By the end of 2023, there was a net year-on-year increase of 254 to 5,734 stores in mainland China at 361 degrees. Among them, the ninth-generation image stores increased 15.9% year-on-year to 3,698, accounting for 64.5%; the number of 361-degree children's stores in mainland China increased net year-on-year by 257 to 2,545, and fourth-generation image stores accounted for 86.7%; in addition, the company actively promoted “internationalization”, and the number of 361 international stores reached 1,260; e-commerce, as an important channel for the company's brand promotion, launched leading products such as Zen 5, DVD1, and Trajectory 4.0. During this period, online specialty product revenue increased 38% year-on-year to 2,326 billion yuan.
Profitability increased steadily. In 2023, the company's gross margin increased by 0.6 pct to 41.1% year on year, and the gross margin for adult footwear and children increased by 1.2/0.9 pct to 42.4%/41.8% year on year, mainly due to an increase in average wholesale prices and an increase in the share of e-commerce channel revenue with higher gross margin; the gross margin for adult clothing decreased by 1.1 pct to 40.5% year on year, mainly due to an increase in sales share of products with low gross margin. On the expense side, the annual sales/management expense ratio was +1.54pct/-0.24pct year-on-year to 21.87%/7.4%. Combined, the annual net interest rate increased by 0.68pct to 12.21% year over year.
Operating conditions remain healthy. By the end of 2023, the company's inventory increased by 14.2% year on year to 1.35 billion yuan, and the number of inventory turnover days increased by 2 to 92 days year on year. The turnaround days for accounts receivable and payable was +1/-11 days compared to 146/109 days. By the end of the period, the company had monetary capital of 3,596 billion yuan and abundant cash flow, providing a solid guarantee for subsequent development.
Investment advice: Positioning the mass market at 361 degrees, achieving excellent revenue growth performance in 2023.
Competitiveness on the product side continues to improve. Asian Games sponsorship and star signings help the brand improve. We are optimistic about the company's subsequent growth. The company is expected to achieve net profit of 11.49/13.14/1,486 billion yuan from 2024 to 2026, an increase of 19.51%/14.34%/13.1% year-on-year, corresponding to the current share price of HK$4.58 (RMB 4.2), and a valuation of 8/7/6 times, maintaining its “buy” rating.
Risk warning: Consumption recovery falls short of expectations, new product development and sales fall short of expectations, increased market competition, profit forecasts and valuations fall short of expectations, etc.