The 2023 results were lower than our expectations. The 1Q24 performance was better than our expectations for the company's 2023 revenue to increase 22% to 1.39 billion yuan, and net profit to mother also increased 3% to 0.7 billion yuan. The performance was lower than our expectations, mainly due to goodwill impairment preparations for Beijing Xineng Energy Measurement during the period. The company's 1Q24 revenue also increased 58% to 380 million yuan, and net profit to mother also increased 287% to 0.7 billion yuan. The performance was higher than our expectations, mainly due to revenue growth that exceeded expectations and good cost control.
Outdoor business layout joint ventures to accelerate store expansion. 2H23 outdoor business revenue also increased 7% to 720 million yuan. Among them, the main brand of Pathfinder increased 16% to 670 million yuan, showing outstanding performance; TOREADKIDS and TOREAD.X revenue fell 17%/29% respectively; Discovery Expedition's revenue declined more year-on-year, mainly due to the end of the company's cooperation with the brand. By channel, 1) Offline business revenue also increased by about 5% to 490 million yuan, including direct management, franchise and joint venture channels, group major customer business, and other revenue of 0.7/3.5/0.7 billion yuan, respectively, -20%/+25%/-28% over the same period last year. 2H23 opened a net total of 63 to 893 main stores, including 30 direct sales and 93 franchised and joint ventures. 2) Online business revenue also increased 6% to 230 million yuan. 2H23 chip business revenue increased sharply to 120 million yuan.
Gross margin returned to normal levels, and impairment of goodwill dragged down profits. 2H23 gross margin also fell by 13ppt to 44.2%, mainly due to falling inventory prices in '22, leading to a high base in cost adjustments. Due to channel restructuring and good cost control, the sales expenses rate also decreased by 4.9ppt to 21.3%. The management expense ratio also increased by 1.5ppt to 13.0%, mainly due to increases in employee remuneration, mergers and acquisition-related expenses, and intangible asset amortization. Asset and credit impairment losses of $100 million were mainly due to accrued inventory price reduction preparations and impairment of goodwill. Profit from changes in fair value increased profits by 80 million yuan, mainly due to Beijing Xinneng's performance compensation promises or fair value changes in consideration. 2H23's operating margin decreased by 0.8ppt to 4.7%.
The sharp increase in 1Q24 results was better than expected. Due to the increase in chip business revenue compared to the scope of the 1Q23 consolidated statement and continued brand and product optimization of the company's outdoor business, 1Q24 revenue also increased 58% to 380 million yuan; net profit to mother also increased 287% to 70 million yuan. The gross margin decreased by 1.5ppt to 47%, the sales and management expenses ratio decreased by 14ppt to 28%, and the operating margin increased by 14ppt to 20%.
Development trends
The company plans to deeply cultivate young and outdoor professional customers and build a product system and brand hierarchy covering all types of consumers; the chip business has the core goal of implementing breakthroughs in the high-end and professional display fields.
Profit forecasting and valuation
Considering the good profit performance of the outdoor and chip businesses, the 24-year EPS forecast was raised 25% to 0.23 yuan, and the 25-year EPS forecast was introduced by 0.25 yuan. The current stock price corresponds to 2.6/2.2 times 24/25 P/S, maintaining a neutral rating. The valuation was switched to 24 years, giving the outdoor/chip business 4/5 times 24 P/S. Considering market sentiment fluctuations in investment sentiment in multiple business models, we gave a 23% valuation discount. Taken together, we lowered the target price by 32% to 5.94 yuan based on the segmented and aggregate valuation method, with 23% upward space.
risks
The terminal retail environment fell short of expectations, industry competition intensified, and new business development fell short of expectations.