Incident Overview

In 2023, the company's revenue/net profit attributable to mother/net profit after deducting non-attributable net profit/operating cash flow were 23.30/0.30/0.12/422 million yuan respectively, up -0.47%/99.51%/267.46%/292.92% year-on-year. The apparent revenue remained flat, mainly due to the decline in OEM revenue, and the core menswear business still grew by 24%. Non-financial subsidies are mainly government subsidies ($0.14/021 million in 22/23). Operating cash flow was much higher than net profit attributable to mother mainly due to increased depreciation and increased payables. 23Q4 single quarter revenue/net profit attributable to mothers/net profit net net income after deduction were $774/-0.09/-016 million, respectively, up 14.83%/70.57%/52.14% year over year. The losses for the single quarter were mainly affected by accrued depreciation.

In 2023, it is proposed to pay a cash dividend of 0.1 yuan for every 10 shares, with a dividend rate of 76.64% and a dividend rate of 0.4%.

Wang Changhui, director and general manager of the company, plans to increase his share holdings by no more than 10 million yuan from February 5, 2024 to August 5, 2024. On April 15, the company announced a repurchase plan. It plans to repurchase 506.33-10.1266 million shares at 3.95 yuan/share on 2024/4/15-2025/4/14, with a repurchase amount of 20 to 40 million yuan, accounting for 0.22%-0.44% of the total share capital.

Analytical judgment:

OEM revenue declined, and the growth of menswear was mainly affected by the shift from franchise to direct management. The company's garment/printing/dyeing/fabric/other business revenue was 20.70/0.69/0.83/0.66 billion yuan respectively, up 1.39%/7.36%/-36.95%/-15.43% year-on-year. (1) By brand, the core business HoDo menswear and OEM apparel achieved revenue of 16.06/463 million yuan respectively, an increase of 23.57%/-37.51% year-on-year, and menswear revenue increased 5% over 2021. (2) Looking at online and offline categories, online/direct/franchise revenue was 583/6.27/376 million yuan, up 9.85%/16.08%/-12.18% year on year; the increase in direct management was mainly due to the increase in the number of stores. As of the end of 23, the company had 1002 stores (476/526 direct/franchise respectively), an increase of 9% year over year (19%/1% increase of direct/franchise stores respectively), 80 net stores opened in '23 (77/3 direct franchisee stores), of which 40 were direct franchisee stores; it is estimated from this that 40 stores were directly managed; The annual efficiency of direct-run stores was 1,3171,000 yuan, a year-on-year decrease of 3%; franchised single-store shipments were 714,600 yuan, a year-on-year decrease of 13%. (3) For 23 years, we have continued to promote the popularity of “zero sense comfort shirts” by over 1 million units.

The increase in net interest rate was lower than gross margin mainly due to the decline in investment income. (1) The company's gross profit margin in '23 was 36.33%, up 2.26PCT year-on-year. The increase in gross margin was mainly due to the decline in the share of OEM revenue with lower gross margin. The gross margins of garment/ printing/ dyeing/ other businesses were 38.35%/8.85%/12.94%/26.79%, respectively, up 2.43/1.40/ -5.61-1.55PCT; among them, the gross margin of HODO menswear/OEM clothing was 46.55%/9.91%, up -4.32/0.20PCT year on year, and the decline in men's gross margin was mainly dragged down by franchise and inventory; by channel, the gross margin of online/direct/franchise/wholesale and other channels was 51.40%/ 59.83%/25.26%/8.37%, up 2.90/2.01/-8.61/-0.20PCT year over year. (2) The company's net interest rate in '23 was 1.34%, up 0.65PCT year on year; in terms of cost ratio, sales/management/R&D/finance expense ratios in '23 were 26.82%/8.18%/0.80%/0.91%, respectively, up 0.30/-0.10/-0.12/-0.30PCT year on year. Net income from investment in '23 was 2.45%, down 1.52 PCT year on year, mainly due to a year-on-year decrease of 0.28 billion yuan in income tax/revenue from projects invested by the company; income tax/revenue was 0.90%, up 0.71 PCT year on year; the share of other income increased 0.4 PCT, mainly due to increased subsidies for the holding subsidiary Jiaxing Hongdou Project; impairment loss/revenue decreased by 0.48 PCT year on year, mainly due to a decrease in credit impairment losses calculated after the company's accounts receivable were collected; the share of asset disposal income increased by 0.4 PCT It is mainly the proceeds from the sale of the company's printing and dyeing equipment assets; the share of non-operating net income decreased by 0.16 PCT.

Follow the company's inventory removal progress. At the end of 23, inventory was 326 million yuan, up 114% year on year. Our analysis was mainly due to the impact of franchise transfer to direct operation; the number of inventory turnover days was 58 days, an increase of 27 days over the previous year. Accounts receivable were 568 million yuan, a year-on-year decrease of 19%. The number of accounts receivable turnover days was 98 days, an increase of 2 days over the previous year. Looking at the inventory structure, stocks within 6 months/6-12 months/12-24 months/24-36 months/36 months/36 months or more accounted for 74.3%/11.0%/13.6%/1.1%/0%, up -4.5/5.0/-1.2/0.8/-0.1PCT year-on-year.

Investment advice:

We analyzed that (1) the company promoted channel upgrading with systematic comfort to create the image of a comfortable menswear store. Strategically, the company first built a good model city in its base in Wuxi and replicated and promoted it to the whole country; (2) Since cooperating with Junzhi Consulting, the company has positioned classic and comfortable menswear and created popular new products one after another. Zero-feel comfortable shirts have launched their first hit. As of 23, the cumulative sales volume has exceeded 1 million pieces, and continues to create other new products such as goose down jackets and extra pants.

Maintain the 24/25 revenue forecast of $25.52 billion and add an additional revenue forecast of $3.193 billion; considering the decline in investment income, the net profit forecast for 24/25 was lowered to $0.46/60 million yuan, and the net profit forecast for 26 was increased by 76 million yuan, and the 24/25 EPS 0.04/0.04 yuan to 0.02/0.03 yuan was adjusted accordingly, and the 2026 EPS forecast of 0.03 yuan was added, and the 2026 EPS forecast was added to close on April 24, 2024 The price of 2.47 yuan corresponds to 24-26 PE of 125/95/75X, respectively, maintaining the “gain” rating.

Risk warning

The risk of opening a store falls short of expectations; the risk of offline store efficiency falling short of expectations; systemic risk; in February 2023, Tan Xiaoxia, the company's current financial director, and Meng Xiaoping, then secretary of the board of directors, were alerted by the Shanghai Stock Exchange.