Description of the event
The company released its 2023 financial report. In 2023, the company achieved revenue of 8.42 billion yuan, +21% year-on-year, net profit to mother +28.7% year-on-year to 960 million yuan, and a full-year dividend rate of 40.2%.
Incident comments
The gross margin of footwear increased, and children's & e-commerce continued to increase rapidly. In terms of financial performance, adult shoes/clothing revenue in 2023 was +23%/10%, respectively. Footwear is still the main driver of growth. Product structure optimization, rising average wholesale prices, and increased e-commerce share driven footwear gross margin +1.2pct to 42.4% year over year. Revenue from children and e-commerce was +36%/38%, respectively, continuing the previous high trend. Expenses such as Asian Games launch and spokesperson signings drove annual A&P expenses +1.3 pct to 12.7% year over year, but factors such as increased gross margin and reduced bad debt provision due to improved accounts receivable structure still drove net income margin +0.7 pct to 11.4% year over year.
The store expanded rapidly, and the structure continued to be optimized. In 2023, 254/257 adult wear/children's clothing stores were opened at 361 degrees. The proportion of adult clothing 9 generation image stores increased to 64% year over year. The area of adult wear/children's clothing single stores increased 9/11 square meters to 138/103 square meters, respectively, and channel quality continued to be optimized. It is expected that adult-wear/children's clothing will continue the trend of opening relatively fast stores in 2024, and the increase in store efficiency driven by the correlation rate and repurchase rate will still be the company's key tasks in 2024.
Accounts receivable turnover is slowing down, and cash flow levels need to be optimized. In 2023, the company's accounts receivable turnover days were +2 days to 149 days year on year, and accounts receivable within 90 days accounted for -11pct to 59% year over year. It is expected to be mainly due to fierce competition in some regions providing account period support, while the number of accounts payable turnover days -11 to 110 days year on year is expected to be due to the company actively optimizing suppliers and reducing the settlement time to bind high-quality suppliers in 2023. The company's net operating cash flow of 410 million yuan fell below the net profit level for the whole year. It is expected that as the company continues to strengthen distributors' credit control, the quality of operations will further improve in the future.
In the short term, it is expected that the company's order growth rate will still be excellent. Combined with the contribution of supplementary orders, revenue is expected to continue to increase in 2024. Furthermore, the company's gross margin range has always been relatively stable, and the net profit growth performance is expected to be excellent under fee rate control. In the medium to long term, the company is still in an upward channel where product strength continues to improve, store structure & store efficiency are optimized, and revenue and performance are expected to maintain steady growth. The comprehensive forecast is that the company will achieve net profit of 11.4/13.5/1.59 billion yuan in 2024-2026, with year-on-year increases of 19%, 18%, and 17%, respectively. Currently, the corresponding PE is 7.5/6.3/5.4X, which is still significantly lower than other sporting goods companies, giving it a “buy” rating.
Risk warning
1. Weak terminal retail;
2. The growth rate of professional sports categories falls short of expectations;
3. Store expansion falls short of expectations.