Introduction to this report:
Profit in 2023 is in line with expectations, the 2024 order trend is safe to resume, and profit side recovery is flexible.
Summary:
Investment advice Short-term corporate orders are recovering, and medium- to long-term overseas production capacity expansion and new customers/category expansion are expected to drive continued growth in performance. We expect the company's net profit to be 56.5/65.7.31 billion yuan in 2024-2026, respectively. The current stock price corresponds to PE 16/14/12 times, respectively, to maintain the “increase” rating.
Revenue in 2023 fell short of expectations and profits were in line with expectations. In 2023, the company's revenue was 24.97 billion yuan, down 10.1% year on year; net profit to mother was 4.56 billion yuan, down 0.1% year on year; gross margin was 24.3%, up 2.2 pct year on year; net profit margin was 18.3%, up 1.8 pct year on year. The profit margin exceeded expectations mainly due to: 1) the company's orders remained flat year on year in September 2023, and then gradually recovered, driving capacity utilization and profit margin restoration to exceed expectations (2023H2 gross margin was 24.3%, up 2.2 pct year on year); 2) The company's net interest income increased by 380 million in 2023, mainly due to the increase in bank deposit size greater than the increase in loan size, and loan interest rates lower than deposit interest rates.
Prices have been reduced and increased in 2023, and the largest customer, Nike, has a clear trend of improving orders. 1) Volume and price split: In 2023, sales volume decreased 15% year over year, US ASP increased 1% year over year, and RMB ASP increased 5% year over year. 2) By customer: Nike 2023H1/H2 revenue was -22%/+1%, respectively; Adidas/Puma 2023H1/H2 revenue both fell by more than 20%, although the month-on-month improvement was small; Uniqlo 2023H1/H2 revenue was +5%/+1%, respectively, leading core customers; domestic customers accounted for more than 11% of revenue in 2023, up 2 pcts year-on-year.
The 2024 order recovery trend is secure, and profit side recovery is flexible. 2023H2's capacity utilization rate has gradually improved, and at present, all domestic and foreign production capacity has been filled. Downstream customers are coming to an end. Although the sales outlook for some customers is cautious, we believe that the company's order recovery trend is safe. The company's sales growth rate is expected to reach the middle double digits in 2024. Among them, Uniqlo orders are expected to continue their steady performance in 2023, Nike orders are expected to continue the 2023H2 recovery trend, and Adidas and Puma orders are expected to achieve high growth in a low base. At the same time, considering the improvement in capacity utilization, it is expected that the company's profit side recovery will be more flexible.
Risk warning: Downstream customers are falling short of expectations when inventory removal falls short of expectations, and capacity expansion falls short of expectations