Incident: Baby-Friendly Room released its 2023 annual report. The company achieved annual revenue of 3.333 billion yuan, a year-on-year decrease of 7.95%, and realized net profit of 105 million yuan, an increase of 21.84% year on year; single Q4 revenue was 911 million yuan, down 8.76% year on year, and realized net profit of 57.79 million yuan to mother, an increase of 40.85% year on year.
Gross margin decreased slightly. Thanks to comprehensive cost-side optimization, net profit margin improved year-on-year. The company's annual comprehensive gross margin decreased by 0.16pp to 28.38%; the Q4 consolidated gross margin increased by 1.28pp to 31.00% year-on-year. On the cost side, the company's expense ratio for the 23-year period was 25.17%, down 0.48pp year on year. Among them, sales/management/finance expenses decreased by 0.14pp/ 0.06pp/ 0.28pp year-on-year to 20.81%/3.35%/1.01%, respectively. Under the combined influence, the net interest rate due to mother in '23 was 3.14%, an increase of 0.77pp over the previous year.
Looking at the subregions, East China accounted for the highest share of sales. In 2023, East China had sales of 1.59 billion yuan, down 6.37% year on year; South China had sales of 299 million yuan, down 3.05% year on year; sales in central China were 574 million yuan, down 7.26% year on year.
By product, food revenue and gross margin of maternal and child services have increased markedly. In 2023, milk powder, food, supplies, cotton spinning, toy travel, and maternal and child services achieved revenue of 19.1, 3.1, 5.2, 2.4, 0.8, and 0.2 billion yuan respectively, a year-on-year decrease of 12.2%, an increase of 13.7%, a decrease of 10.5%, a decrease of 0.8%, a decrease of 6.0%, and an increase of 3.9%. Among them, the gross margin of maternal and child services increased by 6.35pp to 20.57% year-on-year, and the rest of the categories declined to varying degrees.
Profit forecast and investment suggestions: Babe Xiong has effectively increased gross profit margins through measures such as closing inefficient stores and reducing supply chain costs. Dual brand operations expand urban coverage, and are expected to achieve double-digit net store opening in 24 years. The company's revenue for 24-26 is estimated to be 35.6 billion yuan, 37.8 billion yuan, and 3.95 billion yuan, respectively, up 6.8%, 6.2%, and 4.6% year on year; net profit to mother is 1.17, 1.27, and 137 million yuan, with year-on-year growth rates of 11.8%, 8.3%, and 7.9%. Maintain the judgment of a reasonable value of 19.11 yuan/share, corresponding to PE 23X in 24, and maintain a “buy” rating.
Risk warning: Store sales recovery is slower than expected; e-commerce shock; store opening speed falls short of expectations.