Key points of investment:
The company released its 2024 quarterly report, and its performance was basically in line with expectations: 24Q1 achieved revenue of 5.485 billion yuan, up 12.4% year on year; realized net profit of 380 million yuan, up 13.9% year on year; net profit after deducting non-net profit of 328 million yuan, up 11.1% year on year.
24Q1 The traditional core business grew significantly online, focusing on key terminals offline and improving the quality of operations. In 24Q1, revenue from traditional core businesses (excluding technology) was 1,921 billion yuan, up 9.5% year over year. 24Q1 Chenguang Technology's revenue was 247 million yuan, an increase of 32.7% over the previous year. The company actively promoted online channels and jointly established the rhythm, standards and processes of online product development with the racetrack; used the refined operation of multiple stores+flagship stores to improve efficiency; and continued to promote new channel businesses such as Pinduoduo, Douyin, and Kuaishou. The contribution to online revenue growth gradually increased, with 24Q1 traditional+technology revenue of 2.168 billion yuan, an increase of 11.7% over the previous year.
The company's traditional offline channels focus on key terminals (terminals with larger area and higher operating quality) and single store quality improvement, actively promote direct office supply and direct supply, export more accurate and effective product configuration standards, optimize terminal product structure, and enhance terminal product sales competitiveness. At the same time, the Chenguang Alliance App uses digital tools to improve terminal efficiency and achieve steady growth in traditional core business. In the medium to long term, the company continues to develop overseas markets, develop localized products according to local conditions, and promote the construction of regional channels in Africa and Southeast Asia. It is expected to support the company's growth in the medium to long term.
The traditional core business in 2024 revolved around a product-focused strategy, and gross margin optimization was obvious. In 24Q1, revenue from writing tools/student stationery/office stationery was $565/854.00 billion, respectively, or +15.7%/+17.1%/6.4% year-on-year. The company's 2024 product strategy focuses on refining the structure of sales categories, increasing the delivery rate of essential products, and increasing the contribution of individual products. The growth performance of the 24Q1 public and boutique racing tracks improved, driving the rapid growth of writing and student stationery. Office stationery is gradually affected by the external environment and changes in product structure, and the growth rate is expected to increase with subsequent optimizations such as the layout of professional office channels.
The product structure is improving, and supply chain optimization has led to a marked improvement in the gross margin of traditional core businesses. The gross margin of 24Q1 writing tools/student stationery/office stationery was 43.8%/34.7%/27.5% respectively, +3.3pct/+1.0pct/-0.7pct, respectively.
Major retail stores: The 24Q1 Jiumu exhibition store accelerated slightly, operations continued to be refined, and profitability gradually strengthened. The 24Q1 retail business revenue was 371 million yuan, up 23.5% year on year; of these, Jiumu Grocery Store's 24Q1 revenue was 348 million yuan, up 25.0% year on year. As of the end of 24Q1, the company had a total of 678 major retail stores, a net increase of 19 over the end of 2023; of these, 639 were in Jiumu (435 directly managed and 204 franchised), a net increase of 21 compared to the end of 2023 (net increase of 15 stores in 23Q1), and there was a slight acceleration in exhibition stores. Jiumu's management quality continues to be optimized, and stores continue to improve in terms of product portfolio, refined operation, and consumer insight and service. Jiumu continues to play a role as a bridgehead for Chenguang's brand and product upgrades. At the same time, profitability is gradually improving, which will positively drive overall profit in the later stages.
Colipu: 24Q1 growth is under phased pressure, and growth is expected to accelerate in the later stages. In 24Q1, Colipu's business revenue was 2,947 billion yuan, an increase of 11.6% over the previous year. The gross profit margin was 7.2%, which was basically the same as the previous year. Affected by the external environment, the growth rate of Colipu's business revenue decelerated in stages. The company continues to dig deeper into its stock and new customers, focusing on expanding into the four major sectors of office, MRO, marketing gifts, and employee benefits. It has accumulated new customer orders, which are expected to be gradually released and realized on the revenue side in the latter half of '24, and revenue growth is expected to accelerate in the later stages.
Traditional core business product structure optimization drives improvement in gross margin, and overall profitability is mainly stable. The 24Q1 company's gross margin was 20.2%, +0.5pct year on year, and the net margin was 6.9%, +0.1pct year on year. The 24Q1 sales/management/R&D/finance expense rates were 7.4%/3.9%/0.9%/-0.3%, respectively, +0.4pct/-0.02pct/-0.1pct/-0.2pct. The company's 24Q1 traditional core business product structure was optimized to reduce costs and improve the efficiency of the internal supply chain, and drive up gross margin. New channels such as online layout expenses have increased slightly, and overall profitability is mainly stable.
Looking ahead to the later stages: The company's products and brand strength continue to strengthen, and the trend of price increases continues; combined with major retail stores and Colipu's smooth business development, it is expected to drive continued revenue growth in the medium to long term. The company continues to promote product optimization, carry out omni-channel layout, enhance comprehensive retail competitiveness, and lay the foundation for long-term development. See: 1) Deeply cultivate traditional channels and focus on improving the quality of key terminals: the company selects key terminals with larger area and higher operating quality to empower them, strengthen the promotion of key categories, and increase the launch rate of essential products and sub-new products. 2) Explore diversified channels and actively adapt to changes in consumption channels and consumption scenarios: traditional schoolside business districts still dominate, demand for boutique cultural and creative products is further highlighted, actively explore direct supply of excellent domestic stationery retail terminals; actively promote online business (direct management+distribution co-promotion), work with the racetrack to build the rhythm, standards and processes of online product development, and increase market share through differentiated development.
3) Reduce quantity and improve quality on the product side, and continuously optimize the product structure: increase the delivery rate and sales contribution of individual models, promote product reduction and quality improvement, speed up iteration; accelerate the layout of new tracks for fine culture, creativity, children's art, etc., explore new products with multiple consumer scenarios and multiple touchpoints, and continue to enrich the product lineup by promoting internal independent incubation and external IP cooperation.
In the medium to long term, channel competitiveness is stable, product quality and efficiency are being improved, and the scale effect of Colipu is gradually showing. Jiumu New Retail helps upgrade the brand image and promote independent brands to go overseas in the long term. We maintained net profit from 2024-2026 to 17.84/20.69/2,391 billion yuan, +16.0%/+15.6% year-on-year in 2024-2026, respectively. The corresponding PE was 18X/15X/13X, maintaining the “buy” rating!
Risk warning: The recovery in terminal consumption falls short of expectations.