Core view: Channel expansion has been accelerated and product structure has been further upgraded, and the company's performance has exceeded expectations. Looking at the 2-3 year dimension, the company's channel expansion logic is relatively smooth to drive performance growth. Considering the current relatively low valuation level, it makes sense to allocate.
Adjust profit forecasts and maintain an “gain” rating. After the impact of the epidemic subsided, the company's store expansion accelerated, and as the IP strategy advanced, product gross margin further increased, driving the company's performance to exceed expectations. Based on this, we raised our profit forecast. We expect the company's FY2024-2026 revenue to be 15.2.2/181.7/20.78 billion yuan, respectively, up 32.7%/19.4%/14.4%; net profit to mother of 24.5/29.2/3.35 billion yuan (previously 23.0/27.9/3.22 billion yuan in FY24-26), up 38.5%/19.2%/14.6% year on year; EPS is 1.94/2.31/2.65 yuan, corresponding PE is 17.6/14.8 /12.9. Maintain an “incremental” rating based on current valuation levels and future growth.
The company's 23Q4 profit exceeded expectations. (1) The company achieved operating income of 3.84 billion yuan in 23Q4, an increase of 54.0% over the previous year, and achieved net profit of 636 million yuan, an increase of 80.4% over the previous year. The overall performance exceeded expectations.
The product structure upgrade further boosted the gross profit margin, and the cost rate increased due to direct operating costs and brand upgrades. With the increase in the share of overseas high-margin IP products and the improvement of TOP TOY's product structure, the company's 23Q4 gross margin reached 43.1%, increasing 1.4 and 3.2 PCT respectively over the previous year. Sales rates were affected by the expansion of direct-run stores and brand upgrades. Huan, the year-on-year increase was 1.9 and 2.1 PCT to 18.8%. Hedged by the above factors, the company's operating profit margin was relatively stable, reaching 19.9%.
Channel expansion has entered a period of acceleration, driving future performance growth. 2023Q4 added 124 domestic stores to 3,926, overseas stores added 174 to 2,487, and added 973 stores throughout the 2023 natural year, bringing the total number of stores to 6413. Store expansion accelerated after the impact of the epidemic subsided. The company plans to net open about 1,000 new stores every year from 2024-2028. The rapid expansion of stores will drive the growth of the company's performance.
The company is still in the first half of the S curve of store expansion. In terms of 2-3 years, the revenue growth brought about by channel expansion is highly certain. Combined with the increase in gross margin brought about by the upgrading of the product structure, the company's profit is expected to maintain a relatively rapid growth rate. The core logic behind this is that the company has a soft competitive advantage (see previous company depth for details) and China's supply chain advantage. However, we still need to pay attention to potential competition in the long term. Consider that the company is still in the stage of upgrading its product structure, while the entry threshold for the industry is low, and higher profit margins may attract potential capital to enter.
Risk warning: (1) cross-country policy risk; (2) risk of opening a new store less than expected; (3) risk of sample deviation; (4) risk of information lag