Incident: The company recently released its 2023 annual report. 2023 revenue of 5.25 billion yuan/year on year +21.8%, net profit to mother of 698 million yuan/year on year +52.1%; single Q4 revenue 1.59 billion yuan/year on year +24.5%; net profit to mother 140 million yuan/year on year +92%. Cash dividends for the year accounted for 52% of net profit attributable to mother.

The multi-brand matrix drives overall growth, leading to 23 years of high revenue growth. The company's current multi-brand matrix shows a stepwise development. Among them, mature brands (Huggies, Treasure Bird, and Solo) are growing steadily, growing brands (Kemiche, Lefeiye) are growing rapidly, cultivating brands (Henry Grand, TB, Elliott) with low-cost trial and error, and a brand strategy of walking fast in small steps.

News Bird: Revenue +17.2% year-on-year to 1.73 billion yuan. 1) On the channel side, adhering to the big store plan, net opening 22 stores throughout the year (net opening of 10/12 stores for direct operations/franchisees); 2) on the product side, strengthening the development of original fabrics to highlight the advantages of the core suit category; 3) On the brand side, consolidating the consumer perception of Baoxi Bird's “suit expert”.

Haggis: Revenue +24.1% YoY to 1.76 billion yuan. 1) On the channel side, adhering to the big store plan while actively expanding the channel sink; opening 15 net stores throughout the year (net opening 5/10 for direct operations/franchisees respectively); 2) On the product side, focusing on the three major scenarios of commuting, leisure, and sports, optimizing the series structure and increasing the sales share of sports; 3) On the brand side, through marketing promotion on new social media such as Xiaohongshu, etc., as well as offline membership activities and brand tours, etc.

Treasure Bird: Revenue was +15.9% to 1.04 billion yuan, mainly because the Group continues to focus on the development of core regions and increase the penetration rate of the regional market and effectively broaden the customer range. Among them, Hefei's 1 million intelligent manufacturing and production projects are being actively promoted, and it is expected to provide the brand with continuous growth momentum after construction is completed.

Other: Le Feiye, Chemiche & TB, and other brands had revenue of +40.5%/+30.1%/+18.0% year-on-year to 2.6/1.8/140 million yuan, respectively. Among them, Lefeiye focused on leisure travel and outdoor sports, and successfully turned losses into profits during the year.

Divided channels, direct management led growth, and e-commerce was under slight pressure. Direct operation/franchise/group purchase/e-commerce revenue was +44.1%/+15.6%/+0.8% year-on-year to 20.9/8.1/11.6/8.0 billion yuan, respectively, and gross margin was +1.8/-0.6/+0.6/+1.8pct to 77.2%/66.7%/46.4%/69.5%, respectively. The slowdown in e-commerce growth is mainly due to a slowdown in the growth rate of traditional e-commerce platforms after peaking, an increase in return rates, and changes in consumption habits after the epidemic. Among them, the transaction volume of e-commerce platforms was -4.3% to 370 million yuan compared to the same period, and the return rate reached 45% (+10pct year over year).

Changes in channel structure & discount control have led to an increase in gross margin, a decrease in superposition expenses, and a significant increase in profitability. 1) Gross margin was +2.0pct to 64.7% year over year, of which direct management/franchise/group purchase/e-commerce gross margin was +1.8/-0.6/+0.6/+1.8pct to 77.2%/66.7%/46.4%/69.5%, respectively. The increase in revenue share of high-margin direct management channels led to an increase in gross margin. Of these, 23Q4 gross margin was +4.7pct to 64.9% year over year. 2) On the cost side, sales/management/R&D/finance expense ratios were -1.0/+0.6/+0.14/ -0.2pct to 38.7%/7.1%/2.1%/-0.95%, respectively. 3) Net profit margin +2.6pct year-on-year to 13.3%.

Operating indicators: 1) inventory turnover days year over year - 35 days to 226 days; 2) number of accounts receivable turnover days year over year - 6 days to 43 days; 3) net cash flow from operating activities +123.9% to 1.15 billion yuan profit forecast and investment suggestions: The company adheres to the main clothing business and successfully implements a multi-brand development strategy, and 3 brands have entered the 1 billion tier. Capturing the rapid growth in menswear demand under the restoration of the travel scene in 23 years, it has demonstrated superior channel management, product innovation, and brand operation capabilities, and the management's ability to operate multiple brands has been verified. Among them, News Bird optimized the series structure and launched sportswear to broaden consumption scenarios and groups; Haggis optimized the channel structure and increased the layout of third- and fourth-tier cities to open up room for growth; and the scale of other brands is expected to grow steadily. We expect the company's net profit to be 8.1/9.4/1.08 billion yuan in 2024/25/26, respectively, and the PE corresponding to the current stock price will be 8 times 11/9/8, 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.