Key points of investment:
The company released its 23rd annual report and its quarterly report for '24:1) Revenue of 3.54 billion yuan (YoY +22.6%), net profit to mother of 901 million yuan (+25.2% YoY), net profit not attributable to mother of 870 million yuan (+29.4% YoY). 2) 24Q1 revenue of 1.27 billion yuan (+17.6% YoY), net profit of 360 million yuan (YoY +20.4%), net profit without return to mother was 350 million yuan (+21.9% YoY). On the basis that 23Q1 revenue and net profit had achieved high growth in the same period of the previous year, 24Q1 performance continued to reach new highs, demonstrating the high growth of leading the industry. 3) The proposed cash dividend for fiscal year 23 was 570 million yuan. The cash dividend ratio increased sharply from 23.5% last year to 62.7%, with a dividend of 1 yuan per share, corresponding to the latest stock price with a dividend ratio of 3.4%.
The “Maotai in clothing” brand strength is on the rise, and its profitability is comparable to that of top consumer goods. According to the 23rd Annual Report: 1) Overall, gross profit continued to rise, eventually transforming into high net profit. The gross profit margin for 23 years was 78.6% (+1.2pct year on year), and the cost ratio for the period was 47.7% (+1.75pct year on year). The sales/management expenses ratio was 37.1%/7.8%, respectively, +1.2pct/+1.1pct year on year, but in the end, the net profit margin for 23 years was 25.8% (+0.5pct year on year). 2) By channel, there has been a sharp increase in offline direct sales, savings from franchises, and a sharp rise in online gross margin. Direct operation/franchise/online revenue for 23 years was 23.9/9.2/190 million yuan, +35%/-2%/+16%, gross profit margin 83.1%/70.3%/70.6%, and +1.0pct/-0.7pct/+7.2pct.
By the end of '23, the total number of stores was 1,255 (net increase of 64), including 607 direct-run stores (net increase of 28) and franchise stores (36). The spin-off of 23H1/H2 had a net increase of 2/62, respectively. The opening of stores accelerated markedly in the second half of the year. Furthermore, the average area of a single store in '23 was 175 square meters, an increase of 18 square meters over '22, reflecting the trend of larger stores and focusing on improving store quality.
The quality of operations continues to improve, and the asset condition has performed excellently. According to the 23rd Annual Report: 1) Inventory did not grow in line with the expansion of revenue, and turnover efficiency continued to improve. Inventory at the end of 23 million yuan (-5.1% year on year), with 346 days of inventory turnover (year-on-year - 42 days), of which inventory within 2 years of storage accounted for 87%, with strong monetization capacity. 2) Strong cash flow driven by a sharp increase in direct operations and high profit content. Net operating cash flow in '23 was $1.30 billion (+37.5% YoY), and the net present ratio was as high as 1.4 billion yuan. As of 24Q1, the company's monetary capital reached 3.23 billion yuan, which is both resilient to risks and potential for future expansion.
We believe that the current stock price is lower than the average transaction price of employee stock ownership plans, and the valuation is at a low point in recent years, with an outstanding margin of safety! In July of last year, the company issued the “Notice Concerning the Completion of Stock Purchase of the Fourth Phase of the Employee Stock Ownership Plan”, which revealed that it had completed the purchase of 5.909 million shares (accounting for 1.04% of the total share capital), with a transaction amount of about 200 million yuan. The average transaction price is 33.84 yuan/share, which is higher than the current price. Furthermore, according to Wind statistics, the company's current PE valuation is at a low fraction of about 13% since '21.
The rising Chinese luxury goods group is actively laying out a second growth curve, while maintaining high-quality growth and maintaining a “buy” rating. The company completed the acquisition of CERRUTI 1881 and KENT & CURWEN global trademark ownership in 23 years for about 700 million yuan, and officially announced that GUCCI's current menswear design director Daniel Kearns joined on September 6. As the chief creative officer, KENT & CURWEN is expected to take the lead in a new debut in 24Q3, making a spectacular comeback, helping the company improve its international layout and protect the “ten times ten times” high growth target proposed in the 20-week celebration! Considering the domestic consumer environment and investment in new brands, we slightly lowered our 24-25 profit forecast and added a 26-year profit forecast. We expect net profit of 11.4/14.2/1.78 billion yuan in 24-26 years (the original 24-25 year was 1,18/1.5 billion yuan), with a compound growth rate of about 25% over the next 3 years, corresponding to PE 15/12/9 times, maintaining a “buy” rating.
Risk warning: Domestic retail recovery after the pandemic fell short of expectations; store expansion fell short of expectations; competition on sports tracks intensified.