The cold wave hit strongly in 2024, cooling down significantly. Sales of down jackets exceeded expectations, and new categories of sun protection clothing continued to increase. We raised our profit forecast. It is estimated that FY24-FY26's net profit to mother will be 2,903 billion yuan, 3.358 billion yuan, and 3.824 billion yuan, with year-on-year growth rates of 36%, 16%, and 14%. The current market value corresponds to FY24PE15X and FY25PE13X, maintaining a highly recommended rating.
Cold winter weather boosts down jacket sales. Since December, the country has cooled down. In January, a new round of widespread cold weather has ushered in snow and ice weather, driving consumer demand for down jacket products. In particular, there is significant new demand in the southern region, lengthening the sales cycle for winter products before the holiday season and contributing to omnichannel sales.
The product range has been broadened, and lightweight down jackets & sun protection suits are selling well. In addition to classic down jacket product lines such as Extreme Cold, in 2023, the company redefined lightweight down jackets to meet the needs of multiple occasions and seasons; FY24's tax-inclusive sales of lightweight down jackets increased by more than 45% year on year (management expects FY25 lightweight down jacket tax-inclusive sales to further increase to 4.5 billion yuan). The summer sunscreen series has successfully created a popular item, expanded the sunscreen clothing category, and increased the number of sunscreen clothing products. After the cold tide this year, it is expected that the amount of sunscreen clothing in the FY24 sunscreen category will continue to reach 500 million yuan. FY25 plans to increase the number of direct-run stores for sunscreen products to 1,500+ (previously 1000). It is also expanding its categories in the outdoor field, and the Urban Light Outdoor Series has been widely praised one after another, and is expected to provide incremental growth in the company's subsequent development.
Channel management improves quality and efficiency, and fine management creates a benchmark. The company focuses on improving the quality and efficiency of single-store operations, with store management as the center to drive the improvement of store management capacity and operational efficiency; FY24 has built 102 new top stores (currently, the store efficiency has reached 9 million, with a total of about 500 top stores). At the same time, we continue to develop high-quality franchisees, enrich the distribution of high-quality franchisees, and improve store efficiency.
Continuously improve supply chain efficiency. The company and IBM cooperate on digital projects to plan the supply chain, achieve faster online and offline product sharing, and achieve higher product operation efficiency. Guarantee the quick reaction ability of products such as down jackets and sunscreen, and ensure product quality.
Profit forecasting and investment advice. 24Q1 Low Temperatures & Winter Product Function Innovation & Focus on Core Channels, Down Jacket Sales Exceed Expectations; Demand for new categories of sun protection clothing is booming, and we raised our profit forecast. We expect FY24-FY26's net profit to be 2,903 billion yuan, 3.358 billion yuan, and 3.824 billion yuan, with year-on-year growth rates of 36%, 16%, and 14%. The current market value corresponds to FY24PE15X and FY25PE13X, maintaining a highly recommended rating.
Risk warning: risk of sales of new categories falling short of expectations, risk of increasing online traffic costs eroding profits, risk of temperature fluctuations during peak season.