Incident Overview

In 2023, the company's revenue/net profit attributable to mothers/net profit deducted from mother and operating cash flow were 11.52/1.80/1.24/162 million respectively, up 0.76%/8.55%/-9.46%/28.15% year-on-year. Non-financial benefits were mainly government subsidies (0.16/0.46 billion yuan in 22/23, respectively), and the performance was lower than market expectations. We analyzed that 60% of the company's revenue came from online, and the recovery of offline passenger flow after the epidemic had an impact on online; the lower operating cash flow was mainly due to lower net mother profit Loss on changes in fair value and reduction in accounts payable.

It is proposed to pay a cash dividend of 7.6 yuan for every 10 shares in '23, with a dividend rate of 45.6% and a dividend rate of 3.8%.

The 2023Q4 company's revenue/net profit attributable to mothers/net profit after deduction was RMB4.35/0.53/ 0.51 million yuan respectively, up 2.8%/-14.7%/-6.3% year over year; 2024Q1 company's revenue/net profit attributable to mother/ net profit after deduction was RMB2.88/0.53/ 0.44 billion, respectively, up -2.18%/-17.51%/0.82% year over year.

Analytical judgment:

All acquisitions of Ikubutsu have been completed. On 2024/1/12, the company disclosed that it had paid the remaining 10% of the transfer price, that is, 5.88 million US dollars and corresponding interest in accordance with the agreement, and the acquisition transaction has now been completed. According to our analysis, the acquisition of Kasubushi in '23 has not yet contributed to increased performance, and sales expenses and management expenses have increased.

Store efficiency is driving offline growth, and e-commerce revenue is declining. (1) By channel, offline direct management/ franchising/ online sales were 247/137/766 million yuan respectively, up 13.24%/12.67%/-4.58% year on year, but direct management/franchise still decreased 7%/13% year on year; online revenue accounted for 67%, down 3.7 PCT year on year. The number of direct-operated/franchise stores in '23 was 165/374, with a net closure of 4/12, a year-on-year decrease of 2%/3%. It is estimated that direct-run store efficiency/single-store shipments (150/370,000 yuan) increased 16%/16% year over year, single store area was 62.5/56.7 square meters, up 6.8%/6% year on year, direct management/franchise efficiency was 2.4/0.7 million yuan/㎡, up 8.7%/9.4% year on year. The average revenue of direct-run stores operating for more than 12 months in 23 years was 1,329 million yuan, an increase of 12.86% over the previous year. The company opened 17 new direct-run homes, including 4 water kids, 3 leisure walkers, 3 Bebelux companies, and 7 haggis, with an average area of 69 square meters. (2) The subsidiaries Tianjin Jiaman (Water Kids) /Tianjin Jiashi (Jiaxun) /Ningbo Jiaxun (procurement company) achieved revenue of 2.00/5.31/540 billion yuan respectively, a year-on-year decrease of 30%/6%/-3%, net profit of 0.04/-0.06/201 million yuan, a year-on-year increase of -83%/63%/5%, a net interest rate of 2.09%/-1.15%/37.22%, and a year-on-year increase of -6.61/1.83/0.89PCT. (3) By region, excluding e-commerce revenue, revenue in Northeast China/ North China/ East China/ Northwest/ Southwest/ Central South China was 0.22/2.02/1.09/0.20/0.14/ 0.17 billion yuan respectively, up 10%/23%/3%/7%/-12% year on year. The central and southern regions saw the biggest drop in sales revenue but accounted for a relatively low share. North China, the company's main sales area, had a relatively large increase.

The increase in net interest rate was higher than gross profit margin, mainly due to a sharp increase in corporate support funds. (1) The company's gross margin in '23 was 59.76%, up 0.02PCT year on year: the gross margin of online/direct management/franchise was 61.24%/59.99%/53.23%, respectively, up 1.41/-2.96/-0.19PCT year on year. Net interest rate for '23 was 15.62%, up 1.10PCT year over year. Looking at the cost ratio, the sales/management/finance expense rates for 23 were 33.77%/8.49%/-0.36%, respectively, an increase of 1.02/0.89/-0.26PCT over the previous year. Management expenses were mainly due to the increase in consulting fees related to the company's purchase of intangible assets. The share of other income increased by 2.6 PCT to 4.08%, mainly due to the year-on-year increase of 185% to 0.47 billion yuan in corporate support funds; the share of net income from investment increased by 0.7 PCT to 1.13%; the share of net income from changes in fair value increased by 0.51 PCT to 1.91%; the share of impairment losses decreased by 0.31 PCT; non-operating expenses increased by 0.66 PCT; and income tax/revenue increased by 0.73 PCT% year on year. (2) 24Q1 gross margin/net margin was 62.61%/18.48%, respectively, up 1.20/-3.43PCT year-on-year. The 24Q1 sales/management/finance expense ratio was 32.89%/7.19%/-0.46%, up 0.67/0.45/-0.13PCT year on year; the share of other income decreased by 5 PCT; and the share of income tax/revenue decreased by 1.1 PCT.

Inventories declined but turnaround days increased. At the end of 23, inventory was 424 million yuan, down 5.66% year on year. Mainly due to the company's optimization of the storage age structure and increased inventory processing of long-age inventory, inventory/revenue was 37%; the number of inventory turnover days was 339 days, an increase of 14 days over the previous year. Accounts receivable amounted to $38 million, up 5.23% year on year. The number of working days receivable was 11.7 days, an increase of 0.2 days; accounts payable was 150 million yuan, a decrease of 31.52% year on year, and the number of working days payable was 144 days, a decrease of 21 days year on year. The number of inventory turnover days in 24Q1 was 338 days, a decrease of 1 day year over year, and the number of accounts receivable turnover days was 9.6 days, a decrease of 0.3 days year over year.

Investment advice

According to our analysis, (1) the company's acquisition of Icebus in September 23 will help form a second growth curve in the long run, which is expected to lead to an increase in performance; (2) the company still has room to open offline stores. We expect that with only 2 authorized brands, there is still room for the company to open 500 to 600 single brand stores in the future; in the future, as the single store area expands, the connection rate and repurchase rate increase, there is still room for improvement in store efficiency; (4) We expect that as authorized brands with high gross profit grow higher and share share will increase further Net interest rates are still rising space. Considering the increase in licensing fees this year, the online growth rate is expected to be better than offline, increasing the 24-25 revenue forecast by 1,323/1,585 million yuan to 14.74/1,844 billion yuan, adding a 26-year revenue forecast of 2,045 million yuan; lowering the 24-25 net profit of 261/311 million yuan to 2.30/287 million yuan, adding a 26-year net profit forecast of 330 million yuan; corresponding to the 24-25 EPS reduction of 2.41/2.88 yuan to 2.13/2.66 yuan, an increase of 26 yuan EPS predicts 3.06 yuan, and the closing price of 20.16 yuan on April 23, 2024 corresponds to PE 9/8/7 times in 24/25/26, maintaining the “buy” rating.

Risk warning

M&A integration falls short of expectations, store opening progress falls short of expectations, and systemic risks.