Mingchuang Premium announced its 4Q earnings report on March 12. Revenue of 3.84 billion yuan, up 54% year on year; gross profit margin of 43.1%, up 3.1 pct year on year; adjusted net profit of 660 million yuan, up 77% year on year, adjusted net interest rate of 17.2%; adjusted net interest rate excluding foreign exchange was 17.4%, a record high.

Domestic business ① Maintains steady growth. Revenue was $2.35 billion, up 56% year over year. Mingchuang's revenue was 2.16 billion yuan, up 56% year on year; of these, offline revenue was 1.96 billion yuan, up 63% year on year, the average number of stores/single store revenue each increased 17%/39%, and the same store increased 32%. ② Strong certainty and persistence. Offline GMV increased 13% year-on-year in January-February 2024; same-store revenue in January-January was 95% in 2013. ③ Promote the big store strategy and improve the quality of store opening. By the end of 2023, Mingchuang stores had a total of 3,926 stores, a net increase of 124 over the previous month, with a net increase of 23/63/38 in first-tier, second-tier, third-tier cities and below. The company continues to advance the big store strategy, and the 4Q new store area/sales were 14%/33% higher than the average, respectively. In 2023, the domestic store closure rate was only 4%, a record low. The company guides a net increase of 350-450 stores in 2024. ④ TOPTOY enters the fast track of expansion. Revenue was 190 million yuan, up 90% year on year, of which the average number of stores/single store revenue each increased 19%/59% year over year. 2024 will accelerate store expansion and optimize profit structures.

Overseas business ① Revenue reached a new high in a single quarter. Revenue was 1.49 billion yuan, up 51% year on year. The average number of stores/single store revenue each increased 16%/31%, and the same store increased 19%. Overseas GMV increased by about 40% year-on-year in January-February. ② The direct market continues to gain strength. Direct market/agency market GMV increased 76%/27% year over year; revenue increased 86%/26% year over year, and direct market revenue accounted for 52%; same-store revenue each increased 39%/13%. GMV in North America/Europe/Latin America/Asia increased by about 110%/68%/37%/21%, respectively, and 49%/5%/23%/12% in the same store. ③ Exhibits: By the end of 2023, there were 2,487 overseas stores, a net increase of 174 over the previous month. The company maintains its target of 550-650 overseas stores in 2024.

Gross margin and adjusted net interest rate reached record highs. ① Gross profit margin: 43.1%, up 3.1 pcts year on year. Mainly due to optimization of overseas and TOPTOY product portfolios, the share of overseas direct sales market revenue increased to 52% (up 10 pcts year over year). Expense rate: The sales expense ratio was 18.3%, up 1.9 pcts month-on-month, mainly due to increased depreciation in direct-run stores and expenses related to brand upgrades; the management expense ratio was 4.9%, up 0.4 pcts month-on-month. ③ Adjusted net interest rate:

Adjusted net profit was 660 million yuan, up 77% year on year; adjusted net interest rate was 17.2%, up 2.2 pct year on year, up 0.3 pct month on month; after excluding the impact of exchange earnings, it accounted for 17.4% of revenue, up 2.5 pct year on year, up 0.3 pct month on month, reaching a record high.

Valuation forecast: The company adjusted the fiscal year settlement date from June 30 to December 31. We introduced 24-26 natural annual revenue of 175/218/26.6 billion yuan each, up 27%/25%/22% year on year; adjusted net profit of 28.9/36.3/4.47 billion yuan, respectively, up 24%/25%/23% year on year, and adjusted net interest rate of 16.5%/16.6%/16.8%, respectively. Introduced 1Q revenue of 3.74 billion yuan, up 27% year on year; adjusted net profit of 590 million yuan, up 25% year on year, adjusted net interest rate of 15.9%. We gave the company a 24-year valuation of 20-25 times PE, corresponding to a reasonable target market value range of HK$643-80.3 billion, and a reasonable value range of HK$50.9-63.6 per share (converted to HK$1 = RMB 0.9), maintaining a superior market rating.

Risks: Economic decline, industry competition intensifies, store expansion and sub-brand development fall short of expectations.