The company released its 2023 annual report, achieving operating income of 13.66 billion yuan, up 2.5% year on year, and achieving net profit of 1.12 billion yuan, up 76.1% year on year. Among them, 23Q4 revenue and net profit to mother increased 8.5% year on year and fell 20.8% year on year, respectively, and 23Q4 performance fell short of expectations. The company plans to pay a dividend of 3 yuan for every 10 shares, with a dividend rate of about 72%.
By category, casual/children's apparel fell -2.6% year on year and increased 4.9%, respectively, and has recovered to 83% and 91% of revenue for the same period in 2021. Among them, casual wear 23H2 improved the year-on-year growth rate of 23H1, and the 8.2% year-on-year increase of 23H2 was better than the 15.1% year-on-year decline of 23H1. In terms of gross margin, in 2023, casual/children's apparel declined by 2 pcts and increased by 4.9 pcts year on year, respectively, and gross margin of children's apparel increased significantly.
By channel, online channels are dragging down the overall growth rate, while direct sales and franchise channels have achieved restorative growth. In 2023, online/direct/franchise channels achieved growth of -4%, 19%, and 10% respectively, and online sales declined year-on-year. We believe that, on the one hand, due to increased competition, the company's global retail sales in 2022 will increase the ratio of the same price online and offline models, which will have a certain impact on the short-term growth rate of online sales (especially adult clothing). In terms of gross margin, online/direct/franchise channels increased by 4.2, 2.5, and 1.9 pct year-on-year respectively in 2023.
Gross margin increased steadily, and depreciation dragged down full-year results. Specifically: 1) Gross margin increased 2.7 pct to 44% year-on-year in 2023, which we believe mainly benefited from the implementation of global retail; 2) Sales/management/R&D expenses increased by -0.4, 0.2, and -0.2 pct respectively in 2023, with better cost control capabilities; 3) Credit impairment income in 2023 was 0.07 billion, with a loss of 115 million in the same period last year, asset impairment losses were 480 million, and losses for the same period last year were 540 million. 4) The effective tax rate fell 4.7pct year-on-year to 24.7% in 2023.
Inventories improved year over year, and cash flow performance was excellent. By the end of 2023, the company's inventory turnover was 155 days, down 26 days year on year, but still higher than 130-140 days in 2019-2021. Net cash flow from operating activities was $1.94 billion, up 64% year over year, and cash flow performance was healthy. We judge that the company's 2024 performance is expected to achieve steady growth, and offline stores are expected to open net stores throughout the year. At the same time, we are also optimistic that the company will continue to promote the construction of new retail and digital capabilities across the region to help the health and sustainability of medium- to long-term growth.
According to the annual report, we adjusted the profit forecast and introduced the 2026 profit forecast. The company's earnings per share for 2024-2026 are 0.49, 0.57, and 0.64 yuan, respectively (the original 2024-2025 was 0.56 and 0.64 yuan). Referring to comparable companies, the 2024 PE valuation is 14 times, corresponding to the target price of 6.86 yuan, maintaining the “buy” rating.
Risk warning: industry competition intensifies, terminal consumption recovery falls short of expectations, etc.