Incidents:
Kids Wang released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 8.753 billion yuan/ +2.73%, net profit of 105 million yuan/ -13.92%, net profit after deducting non-return to mother, 63 million yuan/ -18.06%, and non-recurring profit and loss of 43 million yuan, mainly from government subsidies and financial asset gains and losses, and plans to distribute a cash dividend of 0.5 yuan (tax included) for every 10 shares. 2023Q4 achieved revenue of 2,405 billion yuan/ +12.62%, net profit attributable to mother - 12 million yuan/loss reduction, net profit not attributable to mother - 23 million yuan/loss reduction. 2024Q1 achieved revenue of 2.194 billion yuan/ +4.64%, net profit attributable to mother of 12 million yuan/ +53.55%, net profit not attributable to mother of 0.03 billion yuan/reversal of losses.
Comment:
The company's revenue performance is stable, and the child Wang Pingxiao is under pressure. In 2023, the company's revenue was 8.753 billion yuan/ +2.73%, by industry: 1) Maternal and child product revenue of 7.576 billion yuan/accounting for 86.56%/+2.15%, of which the main categories: milk powder revenue of 4.633 billion/ +1.78%, supply revenue of 1,278 million/accounting for 14.60%/-9.21%; 2) Other business revenue of 1,177 million/accounting for 13.45%/+6.60%, including maternal and child services, supplier services, advertising business and platform services. By branch and Ping Xiao: 1) The number of stores at the end of the period was 1,025, including Children Wang 508, and Leyou's direct management and franchise hosting stores: 517 home/3; 2) Kid Wang Pingxiao was 5714.65 yuan/square meter, -9.14% YoY. The average revenue of the stores was 1.3474 million yuan, or -10.79%. Due to external factors such as the restricted industry environment, as well as internal store upgrades, the company's store efficiency is under pressure.
Continue to improve the market layout and strengthen the industry's leading edge. The company is steadily promoting a nationalized market layout, and the endogenous aspect has accelerated store upgrading and transformation, increasing the terminal consumer reach rate through the construction of public accounts, applets and apps; the epitaxial side has acquired Leyou International to achieve regional complementarity and model complementarity, and has built a huge store network covering 21 provinces, cities and more than 200 cities across the country, further strengthening its leading position in the maternal and child retail industry. The operational level continues to promote supply chain construction, omni-channel layout and digital construction, and continuously improve operational efficiency and enhance market competitiveness.
Investment advice: The company is still growing under pressure from the external environment, and its leading position in the industry is stable. It is expected to gradually improve profitability by strengthening its scale advantage and improving operational efficiency. Taking into account the intensification of industry competition and adjusting profit forecasts, the estimated revenue for 2024-2026 will be 10.594 million/11.177 billion/ 11.721 billion, respectively, and net profit attributable to mother will be 276 million/368 million/417 million, respectively, corresponding to PE 25 times, 19 times /17 times, respectively. Maintain an “Overweight” rating.
Risk warning: Market competition intensifies; store expansion falls short of expectations; performance forecasts and valuation judgments fall short of expectations.