The company's recent situation
The company announced its business conditions for the first quarter of 2024. It is estimated that 1Q24 revenue will increase by 40-45% (unaudited). The domestic and overseas markets in China will increase by 20-25%/245-250% respectively, all exceeding our and market expectations. The company's domestic business shows experiential consumer resilience and store optimization capabilities. Overseas markets have shown strong store efficiency in emerging markets such as Southeast Asia and North America, driving continued high growth in overseas expansion.
reviews
1. Domestic Q1 same-store performance led the offline retail industry, and online channels resumed steady growth. Looking at the domestic market by business format, 1) Offline channels: The revenue of retail stores and robot stores increased by 20-25%/15-20% respectively, and the increase in store efficiency exceeded market expectations. Take retail stores as an example. Based on the company's official applet statistics, the number of 3M24 stores (combined table+non-consolidated) increased by about a percent lower double digit. Based on this, we estimate that the average store efficiency in Q1 increased by about single to low double digits. In addition to strong travel demand and lipstick effects, we expect more adequate store stocking, category structure and display optimization to drive positively; 2) Online channels: The company expects revenue from Q1 boxers to increase by 0-5%, and revenue from e-commerce and other online platforms to increase by 20-25% (of which Douyin and Tmall increase 95-100%/0-5% respectively). We expect the overall online channel to grow by about double digits. Douyin is siphoning traffic from other online channels, but the company's live streaming model in Douyin's category also promotes fan interaction and new category expansion; 3) Wholesale and others: Q1 achieved 50-55% growth, and we expect to mainly benefit from the increase in the park's opening performance.
2. Channel expansion and store efficiency optimization to accelerate growth in overseas markets. Q1 Revenue from Hong Kong, Macao, Taiwan and overseas increased by 245-250%. Under a lower base, the growth rate increased year over year and month over month. Looking at the split, the number of stores increased by about 150% at the beginning of the period. The driving factors include: 1) an increase in the share of stores in Southeast Asia and North America with higher store efficiency; 2) breakthroughs in key markets such as Thailand, such as the third Thai store that opened in February, with sales exceeding 5 million yuan on the first day; 3) deepening local operations, and the number of fans on the company's overseas accounts expanded rapidly, reaching about 2.4 million in March, an increase of 32% over the beginning of the year.
3. Focus on multiple catalysts for overseas markets and business innovation. 1) Overseas expansion: We expect multiple factors to drive a high increase in overseas store efficiency during the year, including new store size and location optimization, and the scarce store effect in new development cities; in addition, the company's new flagship stores and landmark stores such as the Louvre store that the company plans to expand this year are expected to help increase the brand's potential; social media sharing by famous overseas artists in April will help the brand break the circle faster; 2) Business diversification: the launch of the mobile game and building block categories this year is expected to open up a new business curve; in addition, the company's Ono-themed pop-up store confirms its potential to expand toy categories other than fashion home, the company plans to launch all 3 during the year The new category is worth looking forward to. We are optimistic about the company's broad prospects of using high-quality IP to continue to broaden its business boundaries and grow into a one-stop trendy IP incubation and operation platform.
Profit forecasting and valuation
Considering that domestic and overseas store performance exceeded expectations, the 2024/25 adjusted net profit forecast was raised 7%/10% to $16.4/210 billion. The current stock price corresponds to 24/18 times the adjusted P/E for 2024/25. Maintaining an outperforming industry rating, taking into account profit forecast adjustments, overseas growth and category innovation prospects, the target price was raised 23% to HK$40, corresponding to 29/22 times adjusted P/E in 2024/25, with 20% room for growth.
risks
Overseas expansion falls short of expectations, supply chain risks, market competition, dependency on popular IPs, regulatory policies.