2023 results surpassed our expectations
The company announced its 2023 results: revenue of HK$7.927 billion, -4.4% year over year; net profit to mother of HK$203 million, +507.7% year over year, higher than our expectations, mainly due to the increase in gross margin exceeding expectations.
The Cybex brand grew steadily, and the 4Q23 Evenflo brand and blue chip business ushered in a recovery.
The company's strategic brand revenue in 2023 was +1.0% YoY to HK$7.138 billion. Among them, Cybex brand revenue in 2023 was +12.5% to HK$3,697 million, thanks to the expansion of the global full-pipeline distribution network, contributing significantly to revenue from its own e-commerce platforms launched in Europe and the US; the revenue of the Evenflo brand was -1.1% to HK$2.28 billion. 4Q23, its main retailers ended inventory removal, and revenue resumed strong growth after four consecutive quarters of decline, and +44.5% to HK$626 million YoY; GB brand revenue was -21.2% YoY to HK$1,161 million, mainly due to the brand It is still in the process of scaling and transformation.
In 2023, the company's blue chip and other business revenue was -35.7% year-on-year to HK$790 million, mainly due to a decrease in orders from blue chip customers and retailers due to 1-3Q23 inventory removal, and the company actively optimized other businesses. However, the 4Q23 blue chip business resumed strong growth after inventory removal ended, with revenue +75.9% YoY to HK$267 million.
Gross margin reached a record high, and profit quality improved. The company's gross margin in 2023 was +9.6ppt to 50.1% year-on-year, mainly due to lower shipping and raw material costs, increased revenue share of high-margin brands, and favorable exchange rate changes. The reduction in revenue scale and the company's increase in marketing, logistics, travel and labor expenses led to an increase in the expense ratio. The 2023 sales/expense ratio was +3.6pp/ +2.2ppt to 28.6%/18.4% year over year, respectively; the 2023 financial expense ratio was +1.0ppt to 2.1% year over year, mainly due to the increase in interest on corporate loans due to the US interest rate hike. Overall, the company's net profit margin was +2.2ppt to 2.6% year-on-year in 2023.
Development trends
Looking ahead to 2024, we expect Cybex to expand its global market share. The Evenflo brand will continue to launch an innovative product portfolio, the GB brand will still need time to adjust, and the blue chip business is expected to continue to recover.
Profit forecasting and valuation
Considering that the GB brand is still in the adjustment stage, we lowered our 2024 revenue forecast by 9% to HK$8.77 billion. Considering that the company's profit margin is expected to improve, we raised our profit forecast for 2024 by 6% to HK$260 million, and introduced a profit forecast of HK$320 million for 2025. The current stock prices correspond to 4.2x/3.4x P/E for 2024/25, respectively. Maintaining a neutral rating, considering the good prospects of the company's multi-brand matrix, we raised our target price by 18.6% to HK$0.78, corresponding to the company's 2023/24 5.0x/4.1x P/E, respectively. There is 20% room for growth compared to the current stock price.
risks
The recovery in overseas demand fell short of expectations, strategic brand development fell short of expectations, and there was a risk of exchange rate fluctuations.