In 2023, the company's revenue/net profit attributable to mothers/net profit after deduction of non-attributable net profit/operating cash flow were 13.91/0.72/-0.55/ 409 million yuan, respectively, up 22.10%/2.72%/-354.99%/101.89% year-on-year. According to our analysis, the increase in net profit attributable to mother was mainly due to deducted impairment losses of 85 million yuan; deducted losses were mainly due to fair value change earnings of 79 million yuan, an increase of 63% year over year, mainly due to changes in the fair value of corporate performance compensation promises or fair value changes under uncontrolled corporate performance, as well as changes in the fair value of other non-current liabilities confirmed in respect of sell-off shares held by minority shareholders. Excluding asset impairment losses ($0.98/171 million in 22/23), income from changes in fair value ($0.48/79 million in 22/23), and credit impairment losses ($0.1 to $27 million in 22/23), net profit to mother was $137 million, up 6.2% year over year. Operating cash flow is higher than net profit, mainly due to the reduction in asset impairment reserves and accounts receivable. 23Q4 single quarter revenue/net profit attributable to mother and net profit after deduction was RMB 4.60/0.26/ -90 million yuan respectively, up 17.85%/-56.11%/-905.97% year-on-year. Deducted non-losses were also accrued due to higher losses due to changes in fair value and losses due to asset impairment losses.
In 2023, it is proposed to pay a cash dividend of $0.24 for every 10 shares, with a dividend rate of 28.2% and a dividend rate of 0.5%.
The 2024Q1 company's revenue/net profit attributable to mother/net profit after deduction and operating cash flow were 3.82/0.71/0.67/ -0.64 billion yuan, respectively, up 57.7%/286.6%/417.9%/decline over the previous year. The performance exceeded market expectations. We believe it was mainly due to increased outdoor prosperity in the main business, differences in G2 consolidation time points, and declining sales expenses.
The company has completed the repurchase. On 2024/2/5, the company issued a repurchase report. It plans to repurchase 1161-17.42 million shares at a price of no more than 8.61 yuan/share. The repurchase amount is expected to be 1-150 million yuan, accounting for 1.31%-1.97% of the total share capital. As of 24/3/15, the company had repurchased a total of 1.11 million shares at 3.54 to 5.53 yuan/share, with a repurchase amount of 100 million yuan.
Analytical judgment:
Outdoor restoration increased by double digits, direct store closures, doubling store efficiency, and high growth in South China. Outdoor revenue/net profit/net interest rate in '23 was 1,257.74 billion yuan/ 6%, up 12%/147% /3PCT year-on-year. (1) By product, revenue from outdoor clothes/outdoor footwear and outdoor equipment was 979/2.00/72 million yuan respectively, up 12.15%/24.73%/-17.29% year on year. (2) By channel, growth mainly comes from joint ventures and group buying contributions. Online/direct operation/franchise/joint business/group major customer business/other revenue was 3.45/1.71/2.86/2.75/3.08/0.06 billion yuan respectively, up 7.20%/-6.11%/-22.62%/144.52%/115.13%/-38.94% year-on-year. (3) By brand, core brand explorers increased by 24%, and both the number of stores and store efficiency increased; Discovery divested and TOREADKIDS kept opening stores, but store efficiency declined by 35%. Discovery/ToreadKids/ToRead.x achieved offline revenue of 8.50/0.16/0.31/0.09 billion, respectively, an increase of 24%/-75%/-11%/-29% year-on-year. The number of TOREADKIDS/TOREAD.X stores was 807/78/8 and 79/21/-3, respectively. Pathfinder/TOREADKIDS/TOREAD.X store efficiency was 105/40/1.1 million yuan/year respectively, up 12%/-35%/-2% year over year. At the end of 23, the company had 893 stores and a net opening of 97, of which direct operation/franchise (joint operation) was 61/832, up -58%/28% year on year, including direct management to joint business/franchise; in '23, direct store effectiveness/franchise (joint) single store shipments were 281/34 million yuan/year, respectively, up 123%/-39% year on year; single store area was 112/80 square meters, up 9%/-14% year on year, and direct operating efficiency/franchise shipping was 230.43 million yuan/year, respectively. 4%/-29%. The efficiency of mature direct-run stores that have been in business for more than 12 months was 2.85 million yuan/year, an increase of 97% over the previous year. (4) By region, there was a sharp increase in South China and overseas regions, and the main sales region of North China declined, and the central China market was newly expanded in 23; South China/Northeast China/East China/Northwest/Southwest/Central China/Overseas regions achieved revenue of 1.39/0.96/3.62/2.66/0.38/0.36/0.53/0.48 billion yuan respectively, a year-on-year increase of 587%/28%/-5%/14%/1%/not applicable/ 296%.
The sharp increase in chip revenue is mainly due to the contribution of the subsidiary G2 Touch, which accrues impairment of goodwill, loss of fair value, and minority shareholders' rights. G2 Touch/Beijing Xineng's revenue in '23 was 122/01 million yuan, net profit was 0.29/- 096 million yuan respectively, and net profit contributed 0.13/-58 million yuan to mother. G2 Touch's contribution to performance will continue to grow. On May 31 and October 2023, the company acquired 72.79%/22.22% of G2 Touch's shares, respectively, with a year-end shareholding ratio of 95%.
The decline in net interest to mother was lower than the gross profit margin, mainly due to lower sales expenses, higher earnings from fair value changes, and impairment of goodwill affected 85 million yuan. (1) The gross margin for 23 was 48.23%, down 3.47PCT year on year. Among them, the gross margin of outdoor apparel and outdoor footwear was 51.19%/44.17%, respectively, down 2.85/3.24PCT year on year; net profit margin to mother was 5.16%, down 0.97 PCT year on year. In terms of cost ratios, sales/management/R&D/finance expenses rates in 23 were 23.67%/13.00%/4.79%/-0.49%, respectively, up -4.60/2.19/ -0.38/0.10PCT year-on-year. The decline in sales expenses was mainly due to the decline in employee remuneration (decline in direct-run stores and 22% reduction in sales staff). The share of other income increased by 0.29PCT to 0.57%; the share of net investment income decreased by 1.30PCT to 1.08%, mainly due to the reduction in investment income from long-term equity investment (disposal of Xingzhi Explorer/Explorer Ice and Snow shares in 22/23, contributing 0.2/0.08 billion yuan in profit, respectively); the share of income from changes in fair value increased by 1.43PCT to 5.68%; the share of credit impairment losses decreased by 2.79PCT to -1.93%, mainly due to the return of bad debts receivable; the share of asset impairment losses decreased by 3.72 PCT To 12.32%, mainly due to accrued goodwill and inventory impairment. (2) 24Q1 gross margin was 47.54%, down 1.32PCT year on year; net profit margin to mother was 18.61%, up 11.02PCT year on year, mainly due to reduced sales expenses. In terms of cost ratio, 24Q1 sales/management/R&D/finance expenses ratio was 17.54%/10.56%/3.24%/-3.21%, respectively, down 11.17/3.07/1.13/1.59PCT year on year. The share of other income decreased by 0.49 PCT to 0.50%; the share of net income from investment decreased by 1.57 PCT to 0.18%; the share of income from changes in fair value increased by 0.41 PCT to 0.51%; and income tax/revenue increased by 1.57 PCT to 2.64%.
Inventories and accounts receivable continued to improve. At the end of '23, inventory/accounts receivable amounts were 333/247 million yuan respectively, down 5.1%/34.1% year-on-year. The number of inventory/receivables turnover days was 171/80 days, respectively, a year-on-year decrease of 34/55 days. Inventory/accounts receivable amounts at the end of March '24 were $393/289 million, up -1.2%/9.2% year on year, up 18.0%/17.0% month on month. The number of inventory/accounts receivable turnover days was 163/63 days, respectively, a decrease of 109/56 days year on year, and a decrease of 8/17 days from month to month.
Investment advice
According to our analysis, (1) The company's main business is growing well. In the future, we expect improved terminal discount rates to bring about a reshaping of brand power and an improvement in profitability.
(2) Looking at the chip business, G2 Touch's merger and acquisition was quite successful, mainly benefiting from technology development and downstream customer development.
Considering that the main business exceeded expectations, the 24-25 revenue forecast was raised to 1,565/1,808 billion yuan to 1,746/2.011 billion yuan, adding a 26-year revenue forecast of 2,280 million yuan; increasing the 24-25 net profit forecast of 163/194 million yuan to 180/237 million yuan, adding 276 million yuan to the 26-year net profit forecast; corresponding increase of 24-25 EPS of 0.18/0.22 yuan to 0.20/0.27 yuan, adding an additional 26-year EPS of 0.31 yuan. The closing price of 4.81 yuan on April 25, 2024 corresponds to 24/25/26 PE of 24/18/15X, respectively, maintaining a “buy” rating.
Risk warning
The progress of opening the store fell short of expectations, and the performance of the target of the acquisition was uncertain. Beijing Chip's failure to meet its performance promises calculated the risk of impairment of goodwill, sustainability of camping, and systemic risks.