Industrial resilience in the 2023s highlighted 90 percent of losses. 2024Q1 maintained the “buy” rating of revenue of 3.105 billion yuan (+13.3% year over year, same below), net profit to mother of 116 million yuan (+146.7%), deducted non-net profit of 139 million yuan (+589%), and the difference in year-on-year growth between mother and non-net profit was mainly due to a year-on-year decrease of 1688/44.2 million yuan in forward foreign exchange hedging loss/government subsidies. 2024Q1's revenue was $91 billion (+22.9%), net profit attributable to mother was $70 million (+103%), after deducting non-net profit of $78 million (+121.4%). After deducting non-net profit from 2024Q1, we raised 2024-2025 and added a profit forecast for 2026. We expect net profit for 2024-2026 to be 3.10/4.1/5.2 billion yuan (originally 2.1/270 million yuan), corresponding EPS is 1.2/1.7/2.2 yuan, and the current stock price corresponds to PE15.9/11.5/9.2 times. The whole generation industry continues to consolidate its differentiated production capacity layout and digital advantages, and is expected to grow 20% + in revenue; the brand side will benefit from the increase in travel prosperity, Under refined operation, the package category and cross-border layout have been increased by 90 points, and new opportunities for the reform of the Xiaomi ecosystem. The scale and profit are expected to both pick up, maintaining the “buy” rating.
OEM: In 2023, luggage foundry showed resilience. Garment foundry added 2.44 billion yuan (+11.2%) in B2B business revenue in 2023, accounting for 78.7% (-1.5pct). By business: luggage foundry revenue of 1.97 billion yuan (+2.6%), the slowdown in growth was mainly due to sports and leisure customers leaving inventory, and IT customers reduced the impact of package procurement due to the decline in global PC shipments. However, due to Indonesia's differentiated production capacity layout, new high-quality customers such as Uniqlo, JR286, and YETI were added. The increase in revenue of 470 million yuan (+71%) was mainly contributed by new customers Adidas, Puma, and Muji. Shanghai Jiale's revenue was 1,285 billion yuan (+26.9%), and net profit was -75 million yuan. It is mainly due to expenses related to the relocation of the old factory and the impact of one-time expenses such as inventory calculation due to the SAP system. It is expected that the gross margin of the apparel business will gradually improve as the product structure is adjusted. The gross profit margin in 2023s was 23.9% (+1.9pct), mainly benefiting from customer and product structure optimization and supply-chain efficiency improvements.
Brand: In 2023, the company's own brand turned a loss into profit, with a significant increase in gross margin of 630 million yuan (+22%) in revenue in 2023, mainly due to the recovery of domestic travel, focusing on the categories of travel suitcases and backpacks, rebuilding the brand promotion system, organizing product lines, quickly introducing new products, and combining the user profiles and attributes of various sales channels to form a differentiated product matrix and refined channel operation model. Among them, the company's own brand turned a loss into profit. The brand's gross profit margin in 2023 is 26.6% (+5.7pct), mainly focusing on the increase in revenue share of core categories and new products with high gross margin. It is expected that in 2024, the scale and profitability of the Xiaomi brand will continue to increase under supply chain reforms, and its own brands will contribute to the growth momentum with new channels and new categories as brand potential increases.
2024Q1 deducted a significant improvement in non-net interest rate, and inventory turnover efficiency was improved. (1) The gross margin in 2023 was 24.4% (+2.7pct), the period expense ratio was 16% (-1pct), the sales/management/R&D/finance expenses ratio was -0.5/-0.8/+0.1/+0.1pct, respectively, the net interest rate was 3.7% (+2pct), after deducting 4.5% (+3.7pct) of non-net profit. (2) 2024Q1 gross margin was 24.2% (+2.4pct), with a period expense ratio of 13% (-3pct), sales/management/R&D/finance ratio of -1.5/-0.9/+0.3/-0.8pct, respectively. The increase in R&D expenses was due to an increase in R&D personnel. The decrease in financial expenses was an increase in exchange income and interest income, and changes in fair value/asset impairment losses due to forward hedging and accrued inventory depreciation losses as a percentage of revenue -0.8/-0.6pct, net interest rate to mother 7.8% (+3.1 pct), deducted non-net interest rate 8.6 % (+3.8pct). As of the end of 2024Q1, inventory was 425 million yuan (-13.8%), the number of inventory turnover days was 60 days (-24), and net operating cash flow was 0.037 million yuan (-96.7%), mainly due to a year-on-year increase in inventory preparation.
Risk warning: The recovery in travel demand falls short of expectations, and downstream warehousing falls short of expectations.