The 2023 annual report was released 361 degrees. The performance was in line with expectations, and e-commerce, children's clothing and overseas businesses grew strongly. The company's revenue rose 21.0% year on year to 8.42 billion yuan in '23 (the data in this article are all from company announcements and public exchange of results, same below), and net profit to mother increased 28.7% year over year to 960 million yuan. This is in line with previous performance forecasts of no less than 25%, and the performance is in line with expectations. Continued high growth in performance is mainly due to the continued strong results of the children's clothing business and e-commerce, as well as the brand's cost-effective advantage. The company announced that the annual dividend will be approximately RMB 0.19 per share, with a dividend rate of 40%, which is a significant increase compared to 23H1 of 18%, and the corresponding dividend rate is about 5%.

By business, adult clothing is growing rapidly, and children's clothing is gaining momentum. 1) Adult clothing is growing rapidly, and footwear products are showing outstanding performance. In '23, revenue from the adult business increased 17.4% to 6.33 billion yuan, accounting for 75%. Among them, footwear revenue increased 23.0% year on year to 3.51 billion yuan, and sales volume and wholesale price increased 19.4% and 3.0% year on year, respectively. Apparel revenue increased 9.8% year over year to 2.69 billion yuan, and sales volume and wholesale price increased 9.4% and 0.5% year over year, respectively. Accessories revenue increased 43.0% year over year to 137 million yuan. 2) The children's clothing business is gaining momentum. Revenue in '23 increased 35.7% year on year to 1.96 billion yuan, accounting for 23%. Sales of children's clothing products increased 31.0% year on year, and average lot price increased 3.7% year on year.

Looking at each channel, e-commerce channels are growing rapidly, offline stores continue to be developed, and overseas business is growing at an impressive rate. 1) E-commerce channels continue to grow at a high rate.

Thanks to the continuous introduction of the company's exclusive e-commerce funds and the launch of new products on e-commerce platforms, etc., e-commerce revenue increased 38.0% year-on-year to 2.33 billion yuan in '23, and sales of top goods reached 370,000 pairs during the Double Eleven period, which has become an important driving force for revenue growth. 2) Offline stores continue to develop, and store upgrades are progressing steadily. At the end of 23, the company's adult clothing stores reached 5,734, an increase of 254 over the end of 2022. Among them, the number of Jiudai stores was 3,698, accounting for an increase of 15.9pct to 64.5%. The area of a single store increased by 9 square meters to 138 square meters over the same period last year. According to public exchanges on the results, the store efficiency has reached 2 to 2.5 million. The number of children's clothing sales outlets was 2,545, an increase of 257 over the end of 2022. Among them, the fourth generation stores were 2206, accounting for an increase of 14.9 pcts to 86.7%. The average area of a single store reached 103 square meters, an increase of 11 square meters over the previous year. According to public exchanges based on performance, the store efficiency has reached 1 to 1.3 million. 3) Strong growth in overseas business. At the end of '23, the number of international sales outlets was 1,260, and revenue from overseas business increased 50.1% year-on-year to 185 million yuan in '23.

The operating situation remains steady, and profitability continues to improve. 1) Profitability continues to increase. Gross margin increased 0.6 pct to 41.1% year over year, mainly due to an increase in average batch prices, an increase in the share of e-commerce revenue with high gross margins, and the shift of some orders to lower-cost OEM production. The sales expense ratio increased by 1.5 pct to 22.1% year on year, mainly due to e-commerce channels organizing more promotion and marketing activities. The advertising fee rate increased 1.3 pct to 12.7% year on year, the management fee rate decreased 0.3 pct to 7.5% year on year, the R&D cost rate decreased 0.1 pct to 3.7% year on year, operating profit margin increased 1 pct to 16.4% year on year, and net income margin increased 0.7 pct to 11.4% year on year. 2) Cash flow has improved significantly, and the operating situation is steady. In 23, the number of inventory turnover days increased by 2 days to 93 days, and the number of accounts receivable turnover days increased by 2 days to 149 days. In the future, the management of 75-day account periods will be promoted in regions with better business operations, and the accounting period will be kept within 140 days. The number of payable turnaround days fell by 11 days to 110 days. Net cash flow from operating activities was $408 million, up 7.3% year over year.

Looking ahead to 24 years, management is confident that performance will grow. According to the company's performance conference, the company expects revenue growth of 15-20% and gross margin of about 40-42% in 2024. The sales expense ratio is expected to be 21-23%, the R&D expense ratio is 3-4%, the administrative expenses ratio is 7-9%, and the net interest rate is about 10-12%. At the operational level, accounts receivable/payable turnaround days are expected to be around 140-149/110 days.

The company has been deeply involved in the sports industry for more than 20 years. The results of product development and channel operation have been shown, driving continuous high growth in performance and maintaining a “buy” rating. Considering that the consumer market was still recovering weakly in the short term, we slightly lowered our 24-25 year profit forecast and added a 26-year profit forecast. The net profit for 24-26 is 11.5/13.4/1.54 billion yuan (the original 24-25 year was 1,19/1.39 billion yuan), which is 7/6/5 times PE. In the medium to long term, the company continues to deepen its internal skills in terms of products, brands, channels, etc., brand upgrades continue to advance, and channel optimization effects are gradually showing. In the context of consumer classification, products have the advantages of high cost performance and strong functionality, and are expected to grow faster than the industry, continue to be optimistic about future development, and continue to maintain a “buy” rating.

Risk warning: Offline consumption recovery fell short of expectations, inventory risk increased; market competition increased risk.