In 2023, the company's revenue was +23% YoY; Net Profit to Mother +25% YoY, and the dividend ratio increased. 1) In 2023, the company's revenue was 3.54 billion yuan, +23% year on year, net profit to mother was 91 billion yuan, +25% year over year, net profit after deducting non-return to mother was 870 million yuan, +29% year over year. Profit quality: 2023 gross margin +1.2pct to 78.6%, sales/management/finance expense ratios +1.2/+1.1/-0.5pct to 37.1%/7.8%/-0.8%, respectively; calculated asset value loss of 61 million yuan (1.7% of revenue); net profit margin +0.5pct yoy to 25.8%. The company plans to distribute a discovery dividend of 1.0 yuan/share (tax included), with a dividend payment rate of about 62.7% (+39pct year over year), and a dividend rate of about 3.4% based on the 2024/04/26 closing price. 2) Looking at the fourth quarter of a year, 2023Q4's revenue was 740 million yuan, +12%; net profit to mother was 150 million yuan, -1% year over year; gross margin was +0.1 pct to 86.2% year on year, and sales/management/financial expense ratios were +10.5/+0.6/-0.9 pct year on year to 47.9%/12.3%/-0.4%, respectively (we judge that the increase in sales expenses was mainly due to investment in new brands), and the net profit margin was -2.7 pct to 20.6% year on year.

2024Q1 revenue +18% YoY /Net Profit to Mother +20% YoY, leading the industry. 2024Q1 continued to achieve rapid growth under a high base, with revenue of 1.27 billion yuan, +18% year-on-year, net profit of 360 million yuan, +20% year-on-year, net profit without return to mother of 350 million yuan, +22% year over year; gross margin +0.3 pct to 76% year over year, sales/management/finance expense ratios -0.2/1.2/-0.2 pct to 33.0%/6.1%/-1.0% year on year, net interest rate +0.7 pct to 28.5% year over year.

By channel: In 2023, the improvement in store effectiveness+store expansion successfully drove growth, and direct management performance was better than joining. By channel: Direct sales channels grew rapidly year over year under a low base. In 2023, the company's direct operation/franchise/e-commerce channel revenue was 23.95/9.18/195 million yuan, +35%/-2%/16% year on year; gross margin was 83.1%/70.3%/70.6%, respectively, and +1.0/-0.7/+7.2pct year on year. 1) Offline: The company is currently still in the store expansion stage. In the future, high line encryption and low line decline will jointly drive business growth. ① Store efficiency: The company's customer base is highly sticky, the sales staff incentive mechanism is perfect, and brand power and product strength continue to be upgraded. Driven by the recovery in customer flow in 2023, we judge that the quality of retail operations in the company's stores has improved and store efficiency has increased rapidly over the same period last year. ② Number of stores: 1,255 stores at the end of 2023 (149 newly opened and 85 closed during the year, net increase of 64), including 607 direct-run households and 648 franchisees (net increase of 28 and 36, respectively). We judge that the company's stores are expected to increase by 100 in 2024 (an increase of up to the number of units), and the contribution of expanding stores plus new stores is expected to continue to drive the company's beautiful channel sales performance. 2) E-commerce: Lay out multiple platforms to accurately match customer traffic and channel offline, leveraging the brand advantages of high stickiness and high repurchase rate through omnichannel integration.

Branding: The main brand continues to accumulate, and the new brand will emerge in the fall and winter of 2024. 1) Main brand: product upgrade, channel expansion, and secure consumers' mentality. ① The product adheres to the direction of high-end, quality and youth, and is developed in depth with international fabric suppliers such as GORE-TEX and OUTLAST. In 2023, a new functional down jacket was launched in conjunction with BG Old Flower Design, and the “Dragon Xing World” series with the theme of the Year of the Dragon is in line with consumer preferences; we judge that the 2024 new product series emphasizes simple design, iterates on high-quality fabrics, French elegance, and new Chinese style may become a booming theme in the industry. ② The marketing side focuses on the mentality of the customer base and exposes traffic for brand accuracy, including cooperating national teams competing in the Paris Olympics and cooperating central media to share brand ideas. 2) Other brands are still in the incubation stage, opening up room for imagination for long-term development. Among them, new K&C products are expected to be the first to debut in the fall and winter of 2024.

Excellent cash flow and continuous optimization of inventory turnover. 1) The company's products can be sold for a relatively long time, and inventory is removed through Ole and other channels. Currently, the company's overall inventory is controllable and the storage structure has been optimized. At the end of 2023/2024Q1, the company's final inventory was -5.1%/-1.2% year-on-year, at 71/64 billion yuan, and the number of inventory turnover days was -42/-40 days to 346/200 days, respectively. 2) There is sufficient cash on the account, laying a solid foundation for future business activities such as opening stores. The monetary capital on the final account of 2024Q1 reached 3.23 billion yuan (about 3.5 times the net profit returned to mother in 2023).

The impressive performance in 2024 is expected to continue. Considering changes in weather and base figures, we judge that the year-on-year growth rate of the company's revenue is expected to accelerate compared to Q1 since April 2024. Taking into account that the company is expected to expand stores rapidly. Along with the accumulation of brand value and product strength and continued improvement in store quality, we expect the company's revenue to grow 15% to 20% in 2024/net profit to the mother is expected to increase by 25-30%.

Investment advice. The main brand is a sports fashion and high quality track. Other brands are expanding the ceiling for long-term development. We expect the net profit from 2024 to 2026 to be 11.56/14.06/1,684 billion yuan. The current price is 15 times PE in 2024. The medium- to long-term net profit is expected to grow rapidly, and the valuation is highly attractive, maintaining a “buy” rating.

Risk warning: Risk of fluctuations in the consumer environment; channel expansion falls short of expectations; Venice brand incubation falls short of expectations; brand acquisition results fall short of expectations; sports fashion boom falls short of expectations.