The 2023 results are in line with our expectations, and the 1Q24 results are in line with our expectations. The company announced the 2023 and 1Q24 results: 2023 revenue of 3.03 billion yuan, -1.6% year over year; net profit to mother of 570 million yuan, +7.2% year over year, in line with our expectations. The company announced a dividend of 0.65 yuan/share, with a dividend rate of 95%, corresponding to the current stock price dividend rate of 6.1%. 1Q24 revenue was 650 million yuan, +5.2% year over year; net profit to mother was 120 million yuan, +10.2% year over year, in line with our expectations.
Revenue was solid in 2023, and gross margin reached a record high.
In terms of revenue, revenue from direct-business/franchise/e-commerce and group buying channels in 2023 was -1.1%/-0.4%/-5.5%/+19.5%, respectively, to 7.2/8.2/12.1/160 million yuan, respectively. Among them, online channels were affected by market traffic. The high increase in group buying business was mainly due to the company's increased ToB business development. In terms of stores, direct operation/franchise channels will net 13/11 stores to 484/1,010 stores respectively in 2023.
The gross margin in 2023 was +2.5ppt to 55.6% year-on-year, a record high. Thanks to the company's ability to actively control costs and increase premium capacity for high-end products, gross margin across all channels increased. In terms of expenses, the company controls internal expenses. The management expenses rate in 2023 was -0.3ppt to 3.7% year on year, but due to increased offline expenses, the sales expenses ratio was +0.5ppt to 26.1% year over year. Overall, net profit margin was +1.5ppt to 18.9% year-on-year in 2023.
In 1Q24, revenue from various channels resumed growth, and channel cost investment increased. 1Q24 direct marketing/franchise/e-commerce and group buying channel revenue was +4.1%/+7.5%/+1.3%/+10.5% to 1.6/1.4/2.8/0.4 billion yuan, respectively.
The gross margin of 1Q24 was -0.1ppt to 54.2% year over year. We estimate that the gross margin of all channels declined, mainly due to the high 1Q24 base and the need for companies to maintain the quality of cost-effective online products in a competitive market environment. The 1Q24 sales expense ratio was +1.2ppt to 26.8% year over year, mainly due to the increase in expenses of various channels, and the management expense ratio was -0.5ppt to 3.7% year over year, mainly due to the company's continuous management fee control. Overall, the 1Q24 net profit margin was +0.9ppt to 18.8% year-on-year. In terms of operations, as of 1Q24, the company's inventory turnover days were 12.3 days to 223.3 days year on year, and the net cash flow from 1Q24 operating activities was 73.48 million yuan, which is relatively healthy.
Development trends
We expect that in 2024, the company will continue to open supermarket stores in first-tier cities and add empty franchise channels to establish a brand image and obtain channel resources at the bottom of the cycle to increase market share. At the same time, we believe that the company focuses on steady operation, has good cost control, and is expected to maintain high quality profit levels.
Profit forecasting and valuation
We kept the company's 2024 profit forecast of 637 million yuan unchanged, and introduced a profit forecast of 684 million yuan for 2025. The current stock prices correspond to 14.0x/13.0xP/E for 2024/25, respectively. We maintain a neutral rating. Considering the company's steady operation and outstanding dividend attributes, we are expected to obtain a valuation premium. We raised our target price by 32.3% to 12.93 yuan. The target price corresponds to 17.0x/15.8XP/E in 2024/25, which has room for 21.8% increase compared to the current price.
risks
Terminal consumer demand has fallen short of expectations, channel expansion has fallen short of expectations, online growth has slowed down, etc.