Core views:

The company announced financial results for the first quarter of 2024. According to financial reports, the company achieved revenue of 1,353 billion yuan in 2024Q1, +4.84% year-on-year, net profit to mother of 250 million yuan, -2.09% year-on-year, net profit after deducting non-return to mother of 235 million yuan, +6.93% year-on-year. The year-on-year decline in net profit to mother was mainly due to the company receiving 19 million yuan in government industrial support in 24Q1, compared to 47 million yuan in the same period last year.

Profitability continues to improve, and sales expenses have risen. The 2024Q1 company's gross margin of sales, net interest, and deducted non-net margin was 67.80%/19.04%/17.37%, compared to +1.73/-1.10/+0.34pct. The gross sales margin continued to increase. The main reason is that the Huggis brand, which has a high gross margin, is expected to grow rapidly and the company continues to control the terminal discount level; the sales/management/R&D/finance expense ratio is 36.18%/6.20%/1.59%/-0.78%, compared with 1.35/0.14/-0.11/-0.65pct, the sales expense ratio has increased It is expected that the first is the optimization of the epidemic prevention policy during the same period last year, and the marketing and promotion measures tend to be cautious. Second, the speed at which the company opens stores will increase in 2023, and related expenses will increase.

I am optimistic that the company will continue to achieve steady growth in 2024. The main brand, News Bird, continues to promote brand rejuvenation, transformation and upgrading through innovative products, upgrading channels, enhancing terminal image, and reshaping the brand image, effectively promoting steady brand growth. The Huggis brand continues to enhance its brand potential. The products focus on the three major scenarios of commuting, holidays, and sports, and successfully launched a black label high-end series; continued to implement major store plans and actively expand high-quality franchise channels. By the end of 2023, there were 457 stores, and there was still plenty of room to expand stores and channels.

Profit forecasting and investment advice. The company continues to implement a multi-brand strategy. The mature brands Huggis and Treasure Bird have developed rapidly, and the Happy Bird brand has been rejuvenated and developed steadily; the growth brands Le Fei Ye and Chemiche have developed rapidly and are on the right track to achieve profits and contribute to profit growth; and cultivate brands to strictly control investment. EPS is expected to be 0.57/0.66/0.77 yuan/share in 2024-2026, respectively. Referring to comparable company valuations, combined with the company's future performance growth, the company will be given 14XPE in 2024, corresponding to a reasonable value of 7.93 yuan/share, maintaining a “buy” rating.

Risk warning. Risk of store expansion falling short of expectations, risk of market competition, risk of inventory impairment.