Incident: BabyFriendly Room releases 2023 annual report.
Performance: Overall revenue of $3.32 billion/-7.95% in 2023, net profit of $105 million/ +21.84% to mother.
In 2023, the company actively optimized and streamlined inefficient stores. Sales on some e-commerce channel platforms declined year-on-year, but in the context of improving quality and efficiency, shrinking loss-making stores brought positive profit contributions.
Stores: By the end of 2023, the company had a total of 469 offline retail stores. The annual growth rate of the company's store sales was -6.19%. In 2023, the company opened 41 new stores and closed 43 stores, and the net reduction in stores is nearing its end.
Babe Bear: Achieved net profit of 22.34 million yuan in 2023. In 2023, the company further improved Beibeixiong's operating efficiency, closed inefficient stores, opened more promising shopping malls, introduced more competitive product brands, used the company group's procurement advantages to reduce supply chain costs and improve supply chain efficiency, while strengthening the professional knowledge training of operators and improving the comprehensive sales capacity of shopping guides. A number of measures were taken together. Beibeixiong's overall gross margin increased 4-5 percentage points from before the acquisition, successfully turning losses into profits.
Gross profit margin: The overall gross margin remained stable. The company's gross profit margin in 2023 was 28.38%, a year-on-year decrease of 0.16pcts; of these, the 2023Q1/Q2/Q3/Q4 gross margin was
27.10%/28.55%/26.29%/31.00%, year-on-year change +1.84pcts/-1.54pcts/-2.29pcts/+1.27pcts.
Expense rate: The company's 2023 sales/management/R&D/finance expenses rate was 20.81%/3.35%/1.01%, respectively, with year-on-year changes of -0.14pcts/-0.06pcts/-0.28pcts. ① The reduction in sales expenses is mainly due to the company actively adjusting stores to improve operation and management efficiency; ② The reduction in management expenses is mainly due to the company improving the level of automation of daily management work through the use of information technology such as artificial intelligence.
Cash flow: Net cash flow from the company's operating activities in 2023 was 398 million yuan, compared to 429 million yuan in the same period last year; net cash flow from investment activities was -0.2 billion yuan, compared to 151 million yuan in the same period last year. The change in net cash flow from operating activities is mainly due to a decrease in operating income.
Dividends: The total amount of cash dividends in 2023 is RMB 48.67 million, with a dividend rate of 46.68%.
Profit forecasting and valuation: Based on the “member+product+channel+service” business model, the company provides a full range of high-quality maternal and child products and related services for families with infants and young children from before pregnancy to 6 years old. Although the company's stores are currently being adjusted continuously as traffic in shopping malls declines, judging from store opening and closing data, the company's store restructuring is nearing its end, and it is expected to receive positive store growth in 24 years. Combined with store optimization and loss reduction, it will bring profit contributions. The comprehensive forecast is that 2024-2025, the company will have a net profit of 120 million/135 million yuan, corresponding to the current 15x/14xPE, giving it a “recommended” rating.
Risk warning: store expansion falls short of expectations, shopping mall traffic falls short of expectations, risk of declining fertility