Core views:
The company announced its results for the year 23. In '23, the company's revenue was 24.970 billion yuan, a year-on-year change of -10.1%.
Net profit attributable to mother was 4.557 billion yuan, a year-on-year change of -0.1%. The company proposes to distribute HK$1.08 per share, plus HK$0.95 in the medium term, for a total of HK$2.03 per share for the full year of '23.
The gross margin increased, and the expense ratio increased during the period. In '23, the company's gross profit margin was 24.3%, an increase of 2.2 percentage points over the previous year, mainly due to an increase in the company's overall capacity utilization rate in the second half of '23 compared to the same period of the previous year; the gradual increase in the operating efficiency of new overseas plants, a further increase in the number of new employees employed, and an increase in the profit contribution of overseas factories; and optimization of domestic epidemic prevention policies to eliminate the impact of epidemic-related expenses on performance. In '23, the company's fee rate for the period was 9.6%, an increase of 1.0 percentage point over the previous year. Interest expenses increased mainly due to higher cost rigidity and rising interest rates.
By product and by market. In '23, the company's revenue for sports, leisure, underwear, and other knitwear changed -13.6%, -1.4%, +30.2%, and -41.6% year-on-year, accounting for 72.2%, 22.7%, 4.3%, and 0.8%. In '23, the company's revenue in Europe, the United States, Japan, other markets, and domestic markets changed -19.1%, -20.4%, -6.4%, -7.6%, and +0.7% year-on-year, accounting for 20.1%, 15.6%, 14.7%, 21.1%, and 28.5%.
I am optimistic that the company's 24-year performance will return to the growth channel. As downstream brand customers end their inventory removal, demand is expected to pick up. I am optimistic that the company's orders will resume growth in 24, and a return to normal capacity utilization is expected to lead to an increase in gross margin. Although Nike and Lulululemon are both cautious about future performance guidelines recently, they are optimistic that the company's share of brand customers will increase further.
Profit forecasting and investment advice. EPS is expected to be 3.76 yuan/share and 4.64 yuan/share in 24-25, respectively. Based on the company's historical PE level, combined with our future performance outlook, the company was given 25 times PE in 24 years, with a reasonable value of HK$103.86 per share, maintaining a “buy” rating.
Risk warning. Uncertainty in the trade environment, production capacity expansion falling short of expectations, risk of exchange rate fluctuations, etc.