The impressive results in 2023 benefited from children and e-commerce, maintaining the 2023 “Buy” rating of revenue/net profit to mother of 8.423 billion yuan (+21% year over year, same below)/960 million yuan (+28.7%), 2023H2 revenue/net profit to mother of 4.11 billion yuan (+24%)/260 million yuan (+31%), and a full-year dividend rate of 40.2%. The company's product side has built a matrix of professional products such as running and basketball and continues to innovate. The channel side is effective in opening large stores, and the marketing side brand resources are constantly being enriched. There is still room for offline and domestic store opening and improving store efficiency for a long time. At the same time, e-commerce and children's clothing are growing rapidly, and independent overseas sites have been set up to accelerate penetration and expansion of new markets. In the short term, the share of e-commerce and children's clothing shares is expected to increase profits. The long-term gross margin is expected to rise along with the increase in brand power and e-commerce share. We maintain 2024, raise 2025, and add a profit forecast for 2026. The net profit for 2024-2026 is 11.4/13.5/1.58 billion yuan (originally 1.4/1.34 billion yuan), and the corresponding EPS is 0.6/0.7/0.8 yuan. The current stock price corresponds to PE 7.4/6.2/5.3 times, maintaining a “buy” rating.
Shoes performed better than clothing, and the professional category is expected to continue to perform well in 2024Q1 (1) By category: shoes/clothes/accessories/children's clothing revenue in 2023 was 3.51 billion yuan (+23%)/2.69 billion yuan (+9.8%)/137 million yuan (+42.9%)/1.96 billion yuan (+35.7%), average wholesale price +3.1%/+0.4%/-12.6%/+3.6%, sales volume +19.4%/+63.4%/+31%, respectively. (2) By business: 2023 adult/children's clothes/e-commerce revenue of 39.5/19.6/23.3/190 million yuan, respectively, +10.2%/+35.7%/+38%/+50%, children's clothing and e-commerce performed well, accounting for +2.5/3.4pct to 23.2%/27.6%, respectively. Revenue corresponds to the increase in turnover, 2023Q1-Q4 adult turnover low double/low double/ 15%/20% + growth, children's turnover 20-25%/20-25%/25-30%/40%, e-commerce turnover 35% /30%/30%/30% + growth. (3) Subseries: In 2023, running revenue increased 20% +, accounting for 46% (47% in 2022), basketball revenue increased 40% +, accounting for 9.2% (8% in 2022), and sports income increased 20% +, accounting for 43% (45% in 2022). (4) Operation: In 2023, the net increase of adults/children was 254/257 to 5734/2545 stores, and the net opening of 100-200 stores is expected in 2024. Since the beginning of the year, new products have been discounted at 73 percent off. 2024Q1 expects adult/children's clothing sales to increase by 10-15%/20% +, and e-commerce continues to be strong.
Profitability increased significantly. A&P +1.3pct led to an increase in sales expenses, and operating capacity maintained a steady gross profit margin: gross margin of +0.6pct to 41.1% in 2023, and +1.2/-1.1/+0.9pct for shoes/clothes/children's clothing, respectively. Expense rate: In 2023, the company's sales/management/finance/R&D expenses rate was 22.1%/7.5%/-0.12%/3.7%, respectively, +1.5/-0.3/-0.1/-0.1pct. Profit margin: The operating margin for 2023 was 16.4% (+1pct), and the net profit margin to mother was 11.4% (+0.7pct). Operating capacity: Inventory as of 2023 was 1.35 billion yuan (+14%), mainly due to an increase in e-commerce share. The number of turnover days was 93 days (+2 days), and the number of receivable turnover days was 149 days (+2). Cash flow: Net operating cash flow of $4.1 billion (+7%) and net cash of $4.92 billion (-12%) in 2023.
Risk warning: Market competition intensifies, product acceptance falls short of expectations.