Key points of investment:
The company released its annual report for the year 23 and the quarterly report for '24, and both revenue and net profit were in line with expectations. 1) Revenue of 3.03 billion yuan (-1.6% YoY), net profit attributable to mother was 572 million yuan (YoY +7.0%), net profit net not attributable to mother was 522 million yuan (+8.35% YoY). The profit side reached a record high. 2) 24Q1 revenue of 650 million yuan (+5.2% YoY), net profit attributable to mother of 122 million yuan (YoY +10.2%), net profit not attributable to mother was 105 million yuan (+2.4% YoY). 3) The proposed cash dividend for fiscal year 23 is 540 million yuan. The cash dividend ratio is as high as 95%, and the dividend is 0.65 yuan per share, and the dividend rate corresponding to the latest stock price is about 6%.
High-end brand image is compounded by product personalization, and profitability continues to rise. The company is the only home textile industry to be selected as one of the “60 Outstanding Brands for the 60th Anniversary of the Founding of New China” by CCTV. Relying on retail data insight and consumer demand analysis, the company iterated products in terms of design, process, materials, and functionality around the “Oriental Aesthetics and “Homage to Classics” IP themes in order to enhance premium capacity. According to the 23rd annual report, the gross profit margin for 23 was 55.6% (+2.5pct year over year), and the period cost ratio was 33.1% (+0.16pct year over year), which was basically the same. Among them, the sales/management/R&D expenses ratio remained flat at 26.1%/3.7%/3.6%, and the net profit margin to mother was 18.9% (+1.5pct year on year), which is closer to the 20% target.
High quality omnichannel development, and gross margins have increased significantly. According to the 23rd Annual Report: 1) Online: Don't blindly pursue share, pay more attention to profit levels. Online revenue in '23 was 1.21 billion yuan (-5.5% YoY), accounting for 40%, of which the JD/ Tmall/ Vipshop platform contributed 39%/25%/14%, and the return rate on the JD/ Tmall platform was only 9.2%/7.7%. The e-commerce operation assessment anchors profit indicators, with an online gross profit margin of 48.0% (+1.7pct) in '23. 2) Offline: Direct management to build major benchmark stores, and the franchise focuses on steady expansion. Direct operating revenue in '23 was 720 million yuan (-1.1% YoY), contributing 24%, gross profit margin 70.1% (YoY +3.6pct); franchise revenue of 820 million yuan (YoY -0.4%), contributing 27%, gross profit margin 56.2% (YoY +3.6pct). By the end of '23, the total number of stores was 1,494 (net increase of 24), including 484 direct-run stores (net increase of 13) and 1,010 franchised stores (net increase of 11).
TOC has excellent business advantage+inventory indicators, reflecting superior operating ability than peers. According to the 23 annual report, the company's TOC business (direct management+e-commerce) accounted for 64% of revenue in '23, and the product line was updated and superimposed every quarter in terms of design and innovation. Compared with popular products and peer companies with a high proportion of franchise channels, this requires a stronger level of inventory management. By the end of '23, the company had inventory of 70 million yuan (-7.7% YoY), and the number of inventory turnover days was 196 days (same as year on year).
As a national brand of Chinese home textiles, Fuana operates steadily, guarantees continuous high dividends, has scarce assets, and maintains a “buy” rating. At the end of 23, monetary capital and transactional financial assets in the company's accounts reached 1.31 billion yuan. All short-term and long-term loans were zero, and both resilient to risk and potential expansion conditions. Considering the domestic consumption environment, we have slightly lowered the rate of store expansion, so we slightly lowered our 24-25 year profit forecast and added a 26-year profit forecast. We expect net profit to be 6.3/7.0/770 million yuan for 24-26 (66/73 million yuan for 24-25), which corresponds to PE of 14/13/12 times, maintaining the “buy” rating.
Risk warning: Domestic retail sales recovery fell short of expectations; industry competition intensified; commercial housing and residential sales fell short of expectations.