2023 results grew steadily, profits improved, and a 70% dividend payout rate was maintained. The Q4 Group's revenue was $390 million, up 13.5% year over year. Of this, manufacturing revenue was 380 million, an increase of 13.5% over the previous year. In 2023, the Group's revenue was $1.49 billion, down 8.5% year over year. Of this, manufacturing revenue was 1.45 billion, a year-on-year decrease of 8.9%. The Group's gross profit margin was 24.6%, a year-on-year increase of 3 pcts. Operating margin was 10.7%, up 2.4 pcts year over year. Profit after tax was US$140 million, up 19.7% year over year. Net profit margin to mother was 9.5%, up 2.2 pct year over year. The annual dividend was HK103 cents per share (HK61 cents at the end), with a dividend ratio of approximately 70% and a dividend ratio of 8.3% (at the closing price of 3/25). Reduced brand (retail and wholesale) business in 23 years, with revenue of $4.6 million (-57%). European retail and wholesale operations have been suspended, and the Chinese joint venture business has been overhauled, and the retail layout has been drastically reduced.

The average selling price continued to rise to a new high, and shipments increased in Q4. Q4 Shipments were 13.2 million pairs, up 10.9% year on year, mainly due to continued good sales of footwear products. ASP was $28.8, up 2.1% year over year. Shipments in 2023 were 49 million pairs, down 12.5% year on year, mainly due to adjustments in product and customer portfolios, and inventory reductions by some customers during the year. ASP was $29.7, up 4.2% year over year, the highest since 2009. Mainly due to the decline in the proportion of ASP models in the casual category, customers in other categories launched new high-end products.

The luxury category led the way in revenue growth. By category, sports/luxury/fashion/leisure accounted for 43.2%/9.5%/26.1%/21.2% of manufacturing revenue, respectively, with year-on-year changes of -8%/+4.1%/-6.2%/-18%. We believe that the main reason is that some sneaker customers go out of inventory and allocate leisure production capacity to develop other categories.

Production capacity distribution continues to be optimized, and capacity expansion plans are carried out as scheduled. In 2023, production capacity in China, Vietnam, and other regions of Asia accounted for 26%/51%/23% respectively. Compared with 2019, China's production capacity share decreased by 19 pcts. It is expected that the downward trend will continue to 25% in 24, and the production capacity structure will further improve. The production capacity expansion plan is progressing as scheduled. The new plant in Solo, Indonesia continues to expand production capacity, the new plant in Bangladesh is being further built, and factories are being promoted in cooperation with major sports customers.

Profit levels are expected to rise further in 2024. The 23-year gross profit margin and EBIT margin reached new highs since 2013, mainly due to the high-end product portfolio improving average selling prices and optimizing operation and management efficiency. The company has achieved the mid-term goals of the three-year plan (2023-2025) with an operating profit margin of 10% and a low annual net profit growth rate. We believe that with the optimization of production and operation efficiency, the profit level will further increase. Revenue is expected to increase slightly in 2024 compared to 23 due to the launch of high-end new products, strong demand for luxury and fashion, and increased orders from major sports customers.

Profit forecasting and valuation. We expect the company's net profit for 2024-2026 to be US$1.61/1.80/US$1.99 billion (the original forecast for 24-25 was US$1.39/155 million), with a year-on-year increase of 13.8%/11.9%/10.5%, leaving the 2024 PE valuation unchanged, and converted to US$1 = HK$7.82, corresponding to a target price of HK$17.33 per share (original target price HK$14.99 HKD/share, +16%), maintaining the “superior to market” rating. Risk warning. Customer orders have declined, raw materials have fluctuated sharply, labor costs have risen, exchange rates have fluctuated, and tariffs and trade policies have changed.