Incident: The company released its 2023 annual report, achieving full year operating income of 8.423 billion yuan, +21% year over year; net profit to mother of 961 million yuan, +28.7% year over year; and plans to pay a final dividend of HK13.9 cents per share.
Comment:
The growth rate of children's clothing and e-commerce is impressive, and overseas markets are expanding smoothly. By business, in '23, big clothes/children's clothing achieved revenue of 6334/19.58 billion yuan respectively, with year-on-year increases of 17.4%/35.7%, accounting for 75.2%/23.2% of revenue respectively. The children's clothing business is growing at an impressive rate, mainly due to the company's rich product matrix and enabling iterative product upgrades through technological innovation. By category, sales of oversized shoes/clothing increased by 23%/9.8%, respectively. Among them, sales increased 19.4%/9.4%, and the average wholesale price increased by 3%/0.5%, respectively.
By channel, overseas business revenue was +50.1% year-on-year to 185 million yuan, accounting for 2.2% of revenue (2.2% in the same period last year). E-commerce business revenue was +38% to 2,326 billion yuan, accounting for 27.6% of revenue (24.2% in the same period last year). Double Eleven Tmall's sales ranked first in the domestic racing running shoe industry.
Gross margin and net profit margin improved year on year, and increased marketing activities led to higher rates. In 2023, the company's gross margin was +0.6 pct to 41.1% year on year. Among them, the gross margin of shoes/children's wear/other businesses increased by 1.2/0.9/12.1 pcts, respectively, mainly due to wholesale price adjustments, increased OEM production share, and product structure optimization. The company's sales and distribution expenses/management/R&D expenses in '23 were +1.5/-0.3/-0.1pcts to 22.1%/7.5%/3.7%, respectively. The increase in sales rates was mainly due to increased sponsorship and marketing activities and increased e-commerce investment. During the period, the company's financial costs were +114.3% year-on-year to 2016 million yuan (9.41 million in the same period last year), mainly due to an increase in short-term bank loans. The annual income tax rate increased by 0.4 pct to 23.7%.
Under the combined influence, operating margin was +1pcts to 16.4%; net margin +0.7pcts to 11.4%.
The channel structure continues to be optimized, and marketing efforts help boost the brand's volume. Channel: In '23, 254/257 domestic big clothes/children's clothing stores were opened, respectively, to 5734/2545, of which 341 sold large clothing and children's clothing at the same time. By the end of the year, the share of Dasou 9th Generation and Children's Clothing Generation 4 stores was 64.5%/86.7% respectively. The average store area increased by 9/11 square meters to 138/103 square meters compared to last year, respectively. Marketing: In December 2023, the company officially announced that current NBA star Nikola Jokic is the global brand ambassador, driving the popularity of the BIG3 FUTURE series products and further enhancing the brand's global influence.
Investment advice: The company is deeply involved in the mass sports market. Product innovation and sports endorsements help improve brand strength, brand positioning is in line with consumer trends, and helps achieve beautiful growth in performance. Considering that the company's order response will be good and online is expected to maintain rapid growth, we raised our profit forecast for 24/25 and added a 26-year profit forecast. The company's net profit for 24/25/26 is estimated to be 11.2/13.1/1.48 billion yuan (the original forecast was 1,09/1.24 billion yuan for 24/25), corresponding to the current market value PE of 8/7/6 times, maintaining a “buy” rating.
Risk warning: Consumption recovery falls short of expectations, industry competition intensifies, and channel expansion falls short of expectations.