The 2023 results fell short of our expectations, and the 1Q24 results were higher than our expectations
The company announced 2023 and 1Q24 results: revenue of $1,456 million in 2023, +1.4% year on year; net profit to mother of $107 million, of which 4Q23 revenue was $301 million, +8.2% year over year; net profit to mother of -$03 billion, lower than our expectations, mainly due to lower revenue growth than expected. The company plans to pay a dividend of 1.2 yuan per share, with a dividend ratio of 74.9%. At the same time, it plans to use capital reserves to increase 4 shares for every 10 shares to all shareholders. 1Q24 revenue was 356 million yuan, +3.7% year on year, and net profit to mother was 32 million yuan, +9.3% year over year, higher than our expectations, mainly due to the higher than expected increase in OEM/ODM gross profit.
The brand business continued to grow in 2023, and the gross margin of the export business increased. Looking at the 2023 revenue split, the company's brand business/export business revenue was +31.2%/-26.1% to 9.26/ 529 million yuan, respectively. Among them, the brand business was +62.9%/+3.5%/+27.9%/+27.9%/-11.1% year-on-year to 5.10/3.30/0.29/0.29 billion yuan, respectively. The increase in the share of revenue of Daishu Equipment, which has a lower gross margin, has dragged down overall, but OEM/ODM continues to improve quality and efficiency, compounding the decline in freight costs. OEM gross margin was +4.0ppt to 27.2% year over year, which had a combined impact on overall gross margin remaining flat to 28.3%. In addition, the sales expense ratio in 2023 was +1.8ppt to 8.6% year-on-year due to the expansion of the independent brand market, management/R&D/finance expense ratios were +0.6/-0.6/+0.3ppt, respectively, and the net profit margin was -2.5ppt to 7.3% year-on-year.
1Q24 brand business revenue was under pressure in the short term, and the export business ushered in an inflection point. Looking at the 1Q24 revenue split, the company's brand business/OEM revenue was -8.6%/+14.0% to $141/215 million, respectively. Among them, the growth rate of the brand business declined due to base and seasonality. The correction in OEM/ODM growth rate was mainly due to delays in 4Q23 delivery to 1Q24, recovery in demand, and the growth of original customer orders. The gross margin of 1q24 was +1.2ppt to 27.7% year-on-year, mainly affected by the increase in gross margin of export business of 3.1 ppt driven by OEM/ODM capacity utilization and efficiency improvements. In terms of expenses, sales/management/R&D/finance expense ratios were -1.7/+2.1/+0.1/-0.5ppt, respectively, and the net profit margin to mother was +0.4ppt to 8.9% year-on-year.
Development trends
We expect that the 2Q24 Damu business is expected to achieve good growth under new product iterations and the expansion of scenarios and categories; the Komaki outdoor apparel channel continues to be optimized, and 1Q24 has a net increase of 7 stores. We expect 2Q24 to usher in centralized shipping to drive revenue growth; and the export business is expected to recover steadily under a low base. Throughout the year, we are optimistic that the B-side and C-side of the brand business will work together, and the export business trend will continue to improve.
Profit forecasting and valuation
Considering the uncertainty about the progress of overseas brands being removed from inventory, we lowered our 2024 profit forecast by 24.1% to 130 million yuan, and introduced a profit forecast of 158 million yuan for 2025. The current stock prices correspond to 16.9x/13.9x P/E for 2024/25, respectively. Maintaining an outperforming industry rating, considering the downward trend in the industry valuation center, we lowered our target price by 22% to 40.0 yuan, corresponding to the company's 2024/25 20.5x/16.9x P/E, respectively, with 22% upside compared to the current stock price.
risks
The promotion of new products fell short of expectations, increased market competition, weak overseas demand, and the risk of exchange rate fluctuations.