2024Q1 Company Revenue +5% YoY /Net Profit YoY -2% YoY /Net Profit After Deduction of Non-return to Mother +7% YoY. The company released its 2024 quarterly report: 2024Q1 revenue was 1.35 billion yuan, +5% year-on-year, net profit to mother was 250 million yuan, -2% year-on-year (the slight decline in net profit to mother was mainly due to a year-on-year decrease of 28 million yuan due to differences in the pace of payment), and net profit without return to mother was 230 million yuan, +7% year-on-year. In terms of profit quality:
2024Q1 gross margin was +1.7 pct to 67.8% year over year, sales/management/ finance expense ratios were +1.4/+0.1/-0.7 pct to 36.2%/6.2%/-0.8% year over year (the decrease in financial expense ratio was mainly due to an increase in interest income), and the net margin was -1.1 pct to 19.0% year over year.
By brand: The main brand, HAZZYS's revenue performance is steady, and Treasure Bird estimates rapid growth. By brand: We estimate that in 2024Q1, the main brand revenue will increase by low single-digit year-on-year, HAZZYS brand revenue will increase by low single-digit year-on-year low/Treasure Bird business revenue will increase rapidly by 15% to 20% year over year. By channel, we judge that offline performance was better than online in 2024Q1, and the year-on-year growth rate of franchise delivery revenue was better than direct management.
1. HAZZYS: We estimate that in 2024Q1, brand revenue and turnover will increase slightly year-on-year, the number of channels will expand steadily, and new stores will contribute to business revenue growth. By channel: We estimate that in 2024Q1, the HAZZYS brand's offline revenue will increase by single digits (of which franchise is better than direct management)/e-commerce revenue will drop by 10% to 15%. There was a net increase of 40 to 457 brand stores in 2023 (including 327 directly-operated stores and 130 franchisees). We believe that the trend of rapid store expansion is expected to be maintained in 2024 (10% to 20% new stores are expected to be opened, focusing on high-quality stores). Currently, the brand is still mainly direct-managed, and the layout is high tier cities, and it is expected that the franchise model will accelerate its penetration in the future.
2. The main brand of Annunciation Bird: Considering the pace of delivery, we judge that since 2024, the growth rate of franchise shipments has been faster than the growth rate of turnover. Overall, it is estimated that the brand's 2024Q1 revenue growth is low in single-digit years/turnover has declined year-on-year. Looking at each channel: We estimate that in 2024Q1, the number of units sold by main brands will increase year-on-year (franchise turnover is estimated to be flat and slightly down) /direct management will remain flat and slightly decrease year-on-year; e-commerce will drop 10% to 15% year over year. The main brand channel structure has been optimized, and strong regions have strengthened coverage in large stores and weak regions. In 2023, the number of Xiniao brand stores increased by 13 to 817 (including 232 directly managed or 585 franchised). We judge that the brand is expected to continue to expand stores in 2024 (it is expected that 10% new stores will be opened, and some inefficient stores will be optimally closed).
3. Treasure Bird: We judge that business orders and sales have been growing steadily and rapidly year over year since 2024.
Inventory turnover remains healthy. In terms of operation, the company's inventory at the end of 2024Q1 was -0.6% year over year to 1.07 billion yuan, the number of inventory turnover days was +0.7 days to 241.3 days, and the number of accounts receivable turnover days remained flat at 44.9 days year on year. In terms of cash flow, 2024Q1's net operating cash flow was 0.2 billion yuan, or about 1/10 of net profit returned to mother during the same period, mainly due to the large amount paid for employees' wages and product purchases during the period.
Net profit due to mother is expected to grow steadily and rapidly for the full year of 2024. 1) Considering weekend and holiday misalignment factors, we determine that the 2023Q2 monthly turnover growth rate may fluctuate year-on-year. We judge that since April, the company's core brand turnover has been steady year over year. 2) Considering that the company's HAZZYS and the Happy Bird brand are expected to continue to open new stores and optimize the structure in 2024, while the Treasure Bird business is estimated to grow steadily, we comprehensively estimate that the company's revenue is expected to increase by 10% to 20% in 2024 (it is expected to continue to lead the industry) /net profit to the mother is expected to increase by about 15%.
Investment advice: The company is a leading high-end menswear group in China, and net profit from the mother continues to be released steadily. We expect net profit from 2024-2026 to RMB 806/9.21/1,043 million yuan, respectively. The current price is 10 times PE in 2024, maintaining a “buy” rating.
Risk warning: Store expansion falls short of expected risks; risk of fluctuations in the terminal consumption environment; risk of increased competition in the industry.