Key points of investment
The company released its quarterly report for the year 24. In 24Q1, it achieved revenue of 3.14 billion yuan, +4.6% year over year, net profit to mother/net profit without return to mother of 3.5/340 million yuan, +11.4%/+15.6% year-on-year respectively, and achieved steady growth in performance.
Children's clothing is expected to show resilience, and casual wear is expected to rise against the trend, showing the resilience of children's clothing leaders in 24Q1. According to Euromonitor data, the market share of the Barabara brand defended the first place in the Chinese children's clothing market in '23, reaching 5.2% (+3.3pct compared to the second place). The leading advantage is obvious. 2023-2028E China's children's clothing market has a CAGR of 5.7%, and there is plenty of room for development.
The casual wear business is expected to drop slightly year-on-year in 24Q1. The number of casual wear stores closed 48 to 2,703 in '23, compounded by the fact that Q1 heats up late and affected spring wear sales. The casual wear business is temporarily under pressure. It is expected that as the retail environment heats up, it is worth looking forward to an increase in product operation efficiency.
It is expected that offline stores will be temporarily pressured by closing stores. Looking at the online sales channel to drive steady revenue growth, the 24Q1 offline sales volume is expected to drop slightly, with 42/172 stores being directly operated/joined in '23. This is due to deep adjustments from offline channels over 23 years, compounded by abnormal weather affecting spring clothing sales, and the phased pressure on offline sales in January-January. It is expected that with the recovery in temperature in late March, offline sales will accelerate month-on-month.
It is expected that the increase in online traffic will drive revenue growth in 24Q1. The company will pay more attention to new online retail channels. In '23, the live streaming division was set up to take advantage of the brand matrix's online sales linkage effect, and online and offline terminal retail capabilities will be further strengthened.
The record high gross margin showed that product strength was bucking the trend. Profitability further fixed the gross margin/sales expense ratio/management cost ratio in 24Q1 to +2.3pct/+0.1pct/+0.1pct to 46.6%/24.5%/4.4%/1.5%, respectively. It is expected that the increase in gross margin is mainly due to the increase in the strength of children's clothing and casual wear products to drive up discounts. The slight increase in the cost ratio during the period is expected to mainly increase investment to promote sales, 24Q1 Operating margin and net profit margin to mother were +0.6pct/+0.7pct to 14.4%/11.0%, respectively. Profitability improved significantly, and net profit margin reached a new high in the past two years.
Inventory turnover has further improved, and business quality has improved
Inventory at the end of the 24Q1 period was -23.3% year-on-year to 2.59 billion yuan, -5.8% compared to the end of '23, and the number of inventory turnover days was -51 to 143 days year on year. Inventory book value was at a historically low level, turnover accelerated markedly, and growth can be expected for young 24. Net operating cash flow in 24Q1 was +114.2% year-on-year to $830 million. Cash flow is abundant, and there is a clear trend of improving business quality.
Profit forecasting and valuation
The company's net profit for 24-26 is estimated to be 13.0/15.0/1.70 billion yuan, respectively, corresponding to a year-on-year growth rate of 16%/15%/14%. As of 2024/4/30, the PE corresponding to the market value is 13.5/11.7/10.3X. The company is deeply involved in the apparel industry. The main brands Barabara and Semma have strong brand power. They have benefited from store reforms and organizational changes. The quality of operations has improved markedly and maintained a “buy” rating.
Risk warning: terminal consumption falls short of expectations; changes in consumer preferences