The company released its 2023 annual report and 2024 quarterly report. The 23-year results met expectations, and 24Q1 profit exceeded expectations. 1) Revenue bucked the trend in '23, and the profit side recovered at an accelerated pace. In '23, we achieved revenue of 3.10 billion yuan, an increase of 13.3% year on year, net profit of 120 million yuan, an increase of 146% year on year, after deducting non-net profit of 140 million yuan, an increase of 587% year on year. The results were in line with expectations, with revenue in the middle of the forecast range (forecast range of $3-3.2 billion) and profit at a low level in the forecast range ($111-160 million). 2) Revenue growth accelerated in 23Q4, and increased investment losses led to minor losses. 23Q4 achieved revenue of 820 million yuan, an increase of 41.4% year on year. Net profit due to mother was a loss of 06 billion yuan (22Q4 was a loss of 0.2 billion yuan), after deducting non-net profit of 101 million yuan, an increase of 103% year on year. The marginal loss on the profit side was mainly due to confirmed investment losses of approximately $57 million. 3) 24Q1 revenue maintained high growth, and profit exceeded expectations. 24Q1 achieved revenue of 901 million yuan, an increase of 22.9% year on year, and net profit to mother of 0.7 billion yuan, an increase of 103% year on year. 4) The proposed cash dividend is 0.094 yuan per share, and the dividend rate is 19%.

The OEM business bucked the trend, and the brand management business benefited from the recovery in domestic travel demand. Looking at the spin-off business, 1) OEM business: revenue scale bucked the trend, and product structure and production efficiency improved. In the 23s, the manufacturing business revenue was 2.44 billion yuan, an increase of 11.2% over the previous year, accounting for about 80% of the main business revenue. Among them, luggage OEM revenue was 1.97 billion yuan, up 2.6% year on year. It continued to strengthen its advantages in the luggage manufacturing field, increasing its share among old customers such as Nike, Decathlon, and VF, and expanding new customers such as Uniqlo and YETI; garment OEM revenue was 4.7 billion yuan, an increase of 71.0% year over year, deepening cooperative relationships with clothing customers such as Adidas, Puma, and Muji, and continuously expanding the volume of new OEM business. 2) Brand management business: Travel consumption has clearly recovered, and private brands have turned losses into profits. In 23, the brand management business revenue was 630 million yuan, an increase of 22.0% over the previous year. Seizing the development opportunities of the domestic travel consumer market, focusing on the travel trolley case and backpack categories, rebuilding the brand promotion system, organizing product lines, quickly introducing new products, and quickly seizing market share by relying on brand strength and product strength. By channel, online/distribution channel revenue was 21/410 million yuan, a year-on-year decline of 5.9%/an increase of 44.2%, respectively.

Product structure optimization and improved operating efficiency drive an increase in gross margin, and the results of cost reduction and efficiency in cost control continue to show. Gross margin increased 2.7 pct to 24.4% year on year in '23, gross margin was 24.2% in 24Q1, up 2.4 pct year on year. By business, the gross margin of the manufacturing business increased by 1.9 pct to 23.9% in the 23s, benefiting from OEM business customer and product structure optimization and supply-side efficiency improvements; the gross margin of the brand business increased by 5.7 pct to 26.5%, thanks to the high gross margin of focusing on core categories and new products. The results of cost reduction and efficiency continued to show. The sales/management expense ratio decreased by 0.5 pct/0.8 pct year on year, respectively, in '23, the deducted non-net interest rate increased 3.7 pct year on year, and the 24Q1 deducted non-net interest rate increased by 3.8 pct year on year.

The company is deeply involved in the luggage industry. Luggage OEM is growing steadily, and garment OEM is creating a new growth pole. The brand business benefits from the recovery in domestic travel demand, and is expected to drive high profit flexibility after reversing losses, and maintain a “gain” rating. The market share of the luggage OEM business is expected to continue to increase, and garment OEM revenue will grow rapidly. Brand businesses seize opportunities to optimize products and channels, which is expected to contribute to performance flexibility. Based on the 24Q1 performance, the 24-25 gross margin was raised to 24.9%/25.3% (previously 24.0%/24.6%), and the 24-year profit forecast was increased. Net profit to the mother is expected to be 2.8/3.5/4.4 billion yuan in 24-26 (the original 24-25 year was 2.2/270 million yuan), corresponding to PE 17/14/11 times, maintaining the “increase” rating.

Risk warning: Global luggage demand growth is slowing; fluctuations in raw material costs suppress profitability; exchange rates fluctuate sharply.