Incident: The company recently released its 2023 annual report. 2023 revenue of 13.66 billion yuan/year over year, net profit of 1.12 billion yuan/year on year +76.1%; single Q4 revenue of 4.76 billion yuan/year on year +8.5%; net profit to mother 290 million yuan/year on year -20.8%. In '23, the company's dividend ratio was 72%, with a dividend of 0.3 yuan per share, and the corresponding dividend rate was 5.2%.
The steady growth of the children's clothing business highlights operational resilience, and offline channels have resumed their growth trend. 1) By brand: The revenue of casual wear/children's clothing in '23 was -2.6%/+4.9%, respectively, to 41.7/9.37 billion yuan, accounting for 31%/69%, respectively. The number of casual wear/children's clothing stores decreased net by 48/155, respectively. The number of children's clothing stores closed mainly due to the shift in the business strategy of the Macale brand to online. The overall children's clothing business has maintained a steady growth trend. 2) Channels: Online/direct/franchise/joint venture revenue was -3.5%/+19.2%/+9.7%/-51.9% to 62.3/13.7/57.8/160 million yuan respectively, accounting for 46%/10%/43%/1%, respectively; 3) Number of offline stores: At the end of '23, there were 7937 stores, of which 681/7164/92 were direct-operated/franchised/franchised respectively, a net change of -42/-172/+11. The company's offline stores in '23 are in the adjustment stage. The overall net closure of stores is optimistic that net store opening will resume scale growth in 24 years after the company's channel adjustments.
Improved discounts drive increased gross margin, good cost control, and improved operating capacity. 1) Gross profit margin: 23-year gross margin +2.7pct to 44%, by channel, online/direct/franchise/joint venture gross margin was 43%/67.6%/39.2%/62.5%, respectively, +4.2/+2.5/+1.9/-5.8pct year on year; by brand, casual wear/children's clothing gross margin was 38%/46.8%, respectively. The marked increase in gross margin was mainly due to increased sales of new products, improved discounts, and an increase in the share of high-margin direct operations. 2) Expense side: The cost-control effect was obvious in 23 years. Sales/management/R&D/finance cost ratios were -0.4/+0.2/-0.2/-0.8pct year-on-year to 24.1%/4.6%/2.1%/-1.2%, respectively. 3) Inventory: The number of inventory turnover days was -25.8 days to 155 days, and the net inventory value was -28.6% to 2.75 billion yuan. Product operation efficiency improved, and it is expected that 24 young people will enter the market. 4) Cash flow: Net cash flow from operating activities in 2023 was $1,941 million, an increase of 65.1% over the previous year, and cash flow recovered to health.
Profit forecasting and investment suggestions: The company actively promotes new global retail, along with channel adjustments and operational quality optimization. It is optimistic that the company will resume large-scale growth in 24 years, and that the overseas layout will help the company's sustainable development in the medium to long term. We expect the company's net profit to be 12.7/14.9/1.75 billion yuan in 2024/25/26, respectively. The PE corresponding to the current stock price is 13/11/9 times, respectively, giving it a “buy” rating.
Risk warning: consumption recovery falls short of expectations, channel expansion falls short of expectations, inventory risk, increased industry competition, etc.