Key points of investment
Mingchuang Premium announced its 2023/12/31 quarterly results. Profitability reached a new high. The guidelines are optimistic:
CY23Q4 revenue was +54% YoY to 3.84 billion yuan (domestic +56%, overseas +52%), gross margin +3.2pp to 43.1% YoY to a quarterly high, adjusted net profit margin excluding foreign exchange reached a new high (17.4%), and adjusted NPM +2.5pp to 17.2% yoy. Adjusted net profit to mother +80% year-on-year to $660 million.
The 24-year guideline is a 20-30% increase in revenue (up from the original guideline of 20-25%), and profit is better than revenue.
The goal of opening stores in 24 is 350-450 domestic stores, 550-650 overseas stores, and half of overseas direct-managers/agents each.
Domestic: quarterly revenue increased 56%, with the number of stores +18% /single store +39%, and GMV increased 13% in January-January; Overseas: quarterly revenue also increased 52%, with the number of stores +18% /single store +31%, and GMV increased 40% in January-January.
There is plenty of room for domestic store transformation and expansion, and overseas business entering a period of acceleration has both certainty and growth:
Looking forward to the future, opinions: (1) Be optimistic about domestic stores because there is plenty of room to expand domestic stores.
Domestic same-store sales were 95% of the same period in January-January '24. The market is concerned that store encryption and pressure on shopping center traffic will affect the same stores. Currently, there are about 4,000 domestic stores, of which 2/3, or about 2,600, are less than 200 square meters. Considering that area and location optimization are significantly helpful to store efficiency, store leases are generally 3 years. As the franchisee's store leases expire one after another in the next 3-4 years, franchisees are motivated to change and expand their stores. The calculation has helped SSSG by a number of units, and is expected to make up for the negative effects of store encryption. We expect the domestic business CAGR to be 10-15% in the next 3 years. (2) Overseas business is fully accelerated, the space is vast and growth is certain. Direct management in the United States is waiting for the flywheel to rotate. After 23 years of resuming international travel, management and employees have increased control over overseas operations. At the end of '23, there were about 2,500 overseas stores, and we estimated the medium term overseas store space was about 7,000 (including 1,000 direct sales in the US, 1,000 India, 1,500 in Indonesia, 1,000 in Europe, 1,000 in Latin America, and 1,500 others in East Asia). In North America, it was estimated that the efficiency of US stores in '23 was 12-140,000 US dollars/month, with double-digit profit margins at the store level. The North American location is no longer a limiting factor; talent and organizational effectiveness are the focus. (3) In terms of profitability, as domestic terminal pricing gross margin has reached the previous target (60-65%), the increase in the share of structured Shanghai/IP products will slightly drive gross margin performance.
Maintain the buy rating and give a target price of $28.60:
Revenue and non-IFRS net profit for the 2024/3/31 quarter are estimated to be $36.7/ 60 billion, respectively. The company's revenue from 24E to 26E (with 12/31 as the settlement date for the new fiscal year) is estimated to be 171/208/251 billion yuan, +24%/+21% YoY; non-IFRS net profit to mother will be $2.89/ 35.2/ 4.27 billion yuan, +24%/+22%/+21% YoY. The current price/target price corresponds to about 16 times/23 times non-IFRS 24E PE, respectively.