2024Q1 deduction of non-net interest rates was steady, gross margin was further increased, and the “buy” rating was maintained

2024Q1 revenue of 1.35 billion yuan (YoY +4.8%, same below), net profit after deduction of 250 million yuan (-2.1%), net profit after deduction of non-return to mother was RMB 235 million (+6.9%), net interest rate after deduction of 17.4% (+0.3pct). The difference between net profit attributable to mother and net profit after deduction was mainly due to a reduction of 27.56 million yuan in government subsidies and 19.3 million yuan (-59%). It is expected that government subsidies will be recovered in 2024Q2. 2024Q1 Considering that consumer confidence has not yet fully recovered, we slightly lowered our profit forecast. We expect net profit to be RMB 80/9.1/1.02 billion yuan for 2024-2026 (previously RMB 8.1/9.3/1.04 billion yuan), corresponding to EPS of 0.6/0.6/0.7 yuan. The current stock price corresponds to 10.2/8.9/7.9 times PE. We are optimistic about the increase in sales of sports suits from the main brand and breakthroughs in weak channels. The Huggis brand potential continues to improve. The development of multiple categories of brands and the acceleration of distribution and expansion of weak channels will continue to maintain the “buy” rating .

Revenue driven: All major brands are expected to grow in 2024Q1. Lefeiye maintains a high growth trend. By brand, all major brands will achieve revenue growth in 2024Q1. The revenue of Happy Bird and Haggis is expected to increase by 0-5%, and Treasure Bird is expected to increase by 15-20%. (1) News Bird: It is expected that high orders for franchise shipments will increase, e-commerce will drop by 10-15%, and direct management will drop slightly. In terms of turnover, it is expected that the turnover rate for January-January will increase, and the number of units will decline in March.

(2) Haggis: Franchising is expected to be better than direct management, and e-commerce is expected to drop by 10-15%. In terms of turnover, it is expected that the total sales volume of Huggis will increase in January-January, and will remain flat and slightly increase in March, and gradually improve. (3) Lefeiye: In terms of turnover, Lefeiye is expected to increase by a total of 20-30% in January-January, and a 30% increase in March. (4) Kemice: In terms of turnover, a total double-digit increase is expected in January-January, and a decline is expected in March.

2024Q1 net profit margin was steady, expense ratio increased slightly, and operating capacity remained good (1) Profitability: 2024Q1 gross margin was 67.8% (+1.7pct, up 2.9 pct from 2023Q4), net profit margin 18.5% (-1.3pct), net profit margin 17.4% (+0.3pct) after deduction, mainly due to increased gross margin. (2) Expense side: The cost rate during 2024Q1 was 43.2% (+0.7pct), with sales/management/R&D/finance expense ratios of +1.4/+0.1/-0.1/-0.7pct respectively. The increase in sales expenses was mainly due to a slowdown in revenue growth, and the decline in financial expenses was an increase in interest income on deposits. (3) Operating capacity: 2024Q1 net cash flow from operating activities was 18 million yuan (-88%). The decline was mainly due to an increase in revenue and sales repayments, but an increase in product purchases, employee bonuses, and taxes in the previous year. As of the end of 2024Q1, inventory was 1.07 billion yuan (-7%), inventory turnover days were 241 days (+6 days), receivable volume was 700 million yuan (+8.5%), and receivable turnover days were 45 days (+2 days).

Risk warning: Main brand rejuvenation, channel breakthroughs fall short of expectations, and Haggis channel expansion falls short of expectations.