Revenue side: Revenue growth has exceeded expectations, and children and e-commerce are growing rapidly. The company's revenue in 2023 was 8.42 billion yuan, +21.0% year-on-year, exceeding expectations. The reason for the increase in revenue was driven by the company's brand upgrades and product upgrades. (1) By business: in 2023, the company's large goods business revenue was 6.33 billion yuan, accounting for a year-on-year decrease of 2.3ppt to 75.2%; children's business revenue was 1.96 billion yuan, +35.7% year-on-year, accounting for an increase of 2.5ppt to 23.2% year-on-year; other business revenue was 1.32 billion yuan, +8.0% year-on-year, accounting for a year-on-year decrease of 0.2ppt to 1.6%. (2) E-commerce maintains a high growth trend. The company's e-commerce revenue in 2023 was 2.33 billion, +38.0% year-on-year. E-commerce revenue accounted for 27.6% of the Group's turnover, up 3.4ppt year over year.
Profit side: Net profit to mother +28.7% YoY, dividends paid as scheduled. In 2023, the company's gross profit was 3.46 billion yuan, +22.7% year on year, and gross profit margin was 41.1%, up 0.6ppt year on year. The main reasons for the increase in gross margin are the increase in wholesale prices, the optimization of the sales mix, the increase in the share of e-commerce, and the control of OEM costs.
In terms of specific expenses, the share of advertising and publicity expenses increased by 1.3 ppt to 12.7%, the share of employee costs decreased by 0.6 ppt to 9.2%, and the share of R&D expenses decreased by 0.1 ppt to 3.7%. In 2023, the company's net profit to mother was 960 million yuan, +28.7% year-on-year, with a net profit margin of 11.4%, and profitability improved. The company paid out HK$0.204 (RMB 0.187) per share for the year, with a dividend payout ratio of 40.2%. Cash flow declined, with net cash (including cash and equivalents, etc.) of $4.92 billion in 2024, -12.1% year over year; accounts receivable of $3.831 billion, +26.7% year over year.
Operating performance: Inventories and funds are healthy and manageable, and brand strength and product strength continue to improve. The average inventory turnover days were 93 days, +2 days year on year; the average number of accounts receivable turnover days was 149 days, +2 days year over year; and the average number of accounts payable turnover days was 110 days, -11 days year on year. In 2023, there were 5,734 major sales outlets in mainland China, a net increase of 254. During the year, top basketball star Jokic signed a contract, and the running sector continued to launch popular products.
Our view: With its high cost performance ratio and continuous innovation in the basketball running category, the company is expected to maintain a steady growth rate. As the power of children's products and e-commerce channels continues to be released, children's clothing and e-commerce businesses may grow rapidly. We expect revenue for 2024-2026 to be 10.04 billion yuan/11.34 billion yuan/12.33 billion yuan, +19.2%/+13.0%/+8.7% YoY; net profit to mother will be 1.08 billion yuan/1.35 billion yuan/1.47 billion yuan, respectively, +12.2%/+25.0%/+9.0% YoY, maintaining the “buy” rating.
Risk warning: terminal recovery falls short of expectations, new product promotion falls short of expectations, macroeconomic impact