The company announced its 23-year results announcement. The revenue for the year 23 was 24.97 billion yuan, a decrease of 10.1% over the previous year. The main reason was the decline in current procurement due to the decline in consumer demand for clothing in the European and American markets and the loss of inventory by brand customers, and the overall production capacity was not effectively utilized.
Net profit returned to mother in '23 was approximately RMB 4.557 billion, a year-on-year decrease of 0.1%. The gross margin for '23 was approximately 24.3%, an increase of 2.2 percentage points over the previous year. Mainly due to the gradual improvement in the operating efficiency of new overseas factories, the increase in the number of newly hired employees, the further release of production capacity, and the reduction of fixed operating costs per unit product. Furthermore, due to the weakening impact of the COVID-19 pandemic, the impact of pandemic-related expenses on performance has been eliminated.
By category, sales of sports products decreased by about 13.6% year on year, mainly due to the decline in demand for sports products in Europe and the US; sales of leisure products decreased by about 1.4% year on year, mainly due to a decrease in demand for casual products in Japan and other markets; sales of underwear products increased by about 30.2% year on year, mainly due to rising demand for underwear in Japan and other markets; sales of other knitwear decreased by about 41.6% year on year, mainly due to the discontinuation of mask products in 23, which increased about 0.4% year on year.
By region, China's revenue of 7.1 billion increased 0.7% year over year (29%), Europe's 5 billion decreased 19% year over year (20%), the US 3.9 billion decreased 20% (16%) year over year, Japan's 3.7 billion decreased 6% year on year (15%) year on year, and 5.3 billion in other regions decreased 8% year on year (21%) year on year. Demand for sports mainly declined in Europe and America; demand for casual underwear in Japan declined.
Overseas factory capacity utilization rate climbs
In '23, the garment output from overseas factories accounted for about 53% of the company's total garment output. With the increase in production efficiency and the expansion of the number of employees at the new Cambodian factory, the garment output at the Cambodian base accounted for 26% of the company's total garment output in '23, an increase of 4 pcts over the previous year. In '23, the average annual number of employees at overseas bases accounted for 57% of the company's total average, an increase of 5 pct over the previous year. During the year, the company further improved the integrated support of overseas factories in production processes such as accessories, printing, and embroidery, effectively improving the short delivery capacity.
Improve the efficiency of management decisions, reduce logistics costs, and improve supply chain responsiveness. The company values long-term mutual benefit and win-win situation with partners. Through value chain synergy, it pursues value expression in improving production efficiency, improving innovation capacity, and optimizing resource allocation, taking into account the interests of all parties, achieving the overall optimization of the value chain, and jointly addressing market challenges. In 2023, the information transmission mechanism with relevant parties was further improved, and the transparency of data information in the supply chain was improved, which is conducive to improving the efficiency of management decisions; in terms of production site selection, emphasis was placed on exchanging opinions with upstream and downstream of the industrial chain, which is conducive to reducing logistics costs and improving supply chain response speed; and guiding and selecting suppliers based on value collaboration in the industrial chain to promote the construction of a clean and efficient procurement system.
Laying out global production capacity to enhance competitiveness
The lack of market demand in 23 years has had a short-term adverse impact on the effective use of the company's production capacity. Through the implementation of a series of strategic measures, the company is actively considering further expanding its overseas production capacity layout to better meet customer procurement needs in different markets, further enhance the company's global resource integration capabilities, accelerate the industrial application of intelligent manufacturing and digital management, and promote the development of products in a diversified and high-end direction, and enhance the ability and literacy of front-line management cadres.
Raise profit forecasts and maintain a “buy” rating. As brands end their inventory, overseas clothing consumer demand is likely to pick up to a certain extent. On the basis of adhering to its main business, the company expands the richness of product categories. At the same time, it attaches importance to the application of new fiber materials in the development of high-end textile fabrics, and increases investment in the development of innovative and functional products. Considering that it will take time for overseas demand to recover, but the increase in production capacity utilization helps improve profits, we adjusted our profit forecast. The company's 24-26 revenue is 287.6/329.8/37.70 billion yuan (24-25 years ago values were 311.7/3610 billion yuan, respectively), net profit attributable to mother is 56.2/65.1/7.32 billion yuan (previous values were 52.8/6.20 billion yuan, respectively), and EPS was 3.7 4/4.33/4.87 yuan per share, respectively, corresponding PE was 18 /16/14x
Risk warning: Production capacity expansion and utilization rates fall short of expectations; global terminal consumer demand is slowing down; adjustments in brands' procurement strategies and market investment; risk of foreign exchange fluctuations, etc.