Revenue in 2023 +16% YoY /Net Profit to Mother +37% YoY. The impressive performance is in line with expectations, and the high dividends are attractive. 1) Revenue for 2023 was $21.53 billion, +16% year over year; net profit to mother was $2.95 billion, +37% year over year, in line with expectations. In terms of profit quality: gross margin +1.6pct to 44.5% yoy in 2023; sales/management/finance expense ratios +1.8/-0.5/+0.3pct to 20.2%/4.5%/0.2%, respectively; net margin +2.4pct yoy to 13.6%. 2) 2023Q4 revenue was 5.96 billion yuan, +22% year on year, and net profit to mother was 50 billion yuan, +23% year over year. 3) In 2023, the company plans to pay a cash dividend of 0.56 yuan/share, with a dividend payment rate of 91%, and a dividend rate of about 6.3% based on the 2024/4/29 closing price; the maximum cash dividend limit for the mid-2024 period is expected to be no more than 70% of the net profit due to mother for the mid-term.

2024Q1 Revenue +9% YoY /Net Profit to Mother +10% YoY. 2024Q1's revenue was 6.18 billion yuan, +9% year-on-year; net profit to mother was 890 million yuan, +10%; gross margin was +2.1pct to 46.7%; sales/management/financial expense ratios were +2.7/-0.5/-0.9pct to 19.0%/5.2%/-1.0% year over year, respectively (we judge that the increase in sales expense ratio was mainly due to the increase in directly-managed stores); net margin +0.4 pct to 14.3% year over year.

By brand: The main brand is stable and stable, and other businesses extend the growth curve. 1) Main brand: 2023/2024Q1, Heilan Home brand revenue was +20%/+6% year-on-year to 164.6/5.13 billion yuan, and gross margin was +3.0/+0.6pct to 45.2%/46.4% year-on-year, respectively. The main brand empowers its products with technology, and launched the “New Cool Feeling” series in summer/the “Aurora Goose Down” series in winter. It continues to improve product quality, adhere to superior cost performance, and is welcomed by the consumer market. 2) Customized Group Buying Series: 2023/2024Q1 Group Buying Business Revenue +1%/+54% YoY to 2.28/550 million yuan, respectively, and gross margin -1.78/ -0.65pct to 46.82%/48.25%, respectively. We estimate that the rapid growth in the group buying business in 2024Q1 is mainly due to the impact of the pace of delivery and revenue confirmation, and business revenue for the whole year is expected to grow steadily year over year. 3) Other brands: Other brands represented by OVV had revenue of +6%/-25% year-on-year to 2.02/370 million yuan, respectively, and gross margin was -2.0%/+3.25% to 50.2%/58.7% year over year. We judge that the decline in revenue for other brands in 2024Q1 was mainly due to previous performance by boys and girls and showed differences in caliber. 4) Sports (sports brand management business): As of the end of 2023, Shanghai Hailan invested 160 million yuan (holding 40% of SPOTS shares) to build a sports brand management business. We judge that 2023/2024Q1 contributed investment income of 0.34/0.1 billion yuan to the company's statements, respectively. It is estimated that the business will continue to grow rapidly in 2024.

Channel division: The recovery of offline store efficiency in 2023 will drive growth, and we expect e-commerce to perform well in 2024. 1) Offline: Along with the recovery in customer flow since 2023, we judge that the company's offline store efficiency has increased year-on-year, driving brand revenue performance. ① Direct stores: 2023/2024Q1 channel revenue was +49%/+14% year-on-year to 45.3/1.41 billion yuan, respectively, and gross margin was -0.55/+2.3 pct to 62.6%/63.2% year-on-year, respectively. ② Franchise stores: 2023/2024Q1 channel revenue was +10%/flat to about 139.4/4.09 billion yuan, respectively, and gross margin was +1.55/-0.65pct to 40.3%/41.74% year on year, respectively. The company focuses on expanding shopping malls and improving the quality of channel structures using a direct management model. It is estimated that the trend will continue in 2024. At the end of 2023, the number of direct-operated/franchised stores of the main brands was +198 home/-164 compared to 1252/4724, respectively, and the number of direct-managed/franchised stores at the end of 2024Q1 was +15/-37 compared to the beginning of the period, respectively, to 1267/4687. 2) Online: Steady and rapid growth, with improved profit quality. 2023/2024Q1 companies' online channel revenue was +14%/+34% year over year to 3.26/ 850 million yuan, respectively, and gross margin was +8.3 pct/basically flat to 48.15%/47.6% year over year, respectively. We estimate that e-commerce expansion is expected to drive continued rapid growth in online revenue in 2024.

Inventory impairment is managed carefully, and cash flow is excellent. At the end of the 2023/2024Q1 period, the company's inventory was -1.3%/+5.7% year over year to 93.4/8.22 billion yuan. We judged that the storage structure was healthy and the inventory impairment calculation was sufficient. In 2023/2024Q1, the company calculated asset impairment losses of 405/260 million yuan, inventory turnover days -15.5/-6.3 days to 283.0/239.9 days, respectively, accounts receivable turnover days -3.0/ -4.3 days were 17.9/14.0 days, respectively, and net operating cash flow of $52.3/1.38 billion, respectively (approximately 1.8/1.6 times net profit due to mother for the same period).

Results for the full year of 2024 are expected to grow steadily. 1) Considering the recent state of the industry, we judge that the main brand's offline turnover fluctuated slightly year-on-year in April 2024/e-commerce turnover was still growing rapidly. 2) Looking at the whole year: The offline operation of the main brand is still expected to remain steady. At the same time, the e-commerce category is expanding, the overseas business is emerging, the SPOTS business is growing rapidly, and the group purchase business is developing steadily. Considering the existence of one-time asset disposal income in 2023, it is estimated that both the company's revenue and net profit to mother will grow by a high number of units in 2024.

Profit forecasts and investment recommendations. The company's operations are stable, and the high dividends are attractive. The company's net profit from 2024 to 2026 is estimated to be 31.5/35.3/3.88 billion yuan. The current stock price is 13 times PE in 2024, maintaining an “increase in holdings” rating.

Risk warning: downstream consumer demand fluctuates; main brand innovation results and terminal performance fall short of expectations; new brand development falls short of expectations.