The company released its 23 annual report and 24 quarterly report, and both revenue and net profit were in line with expectations. 1) Revenue for 23 years was 21.53 billion yuan (+16.0% YoY), net profit of 2.95 billion yuan (YoY +37.0%), net profit after deducting non-return to mother was 27.1 billion yuan (+30.6% YoY). The divestment of the children's clothing brand “Boys and Girls” during the year contributed about 150 million yuan in one-time investment income, and the profit scale returned to pre-pandemic levels. 2) 23Q4 had revenue of 5.96 billion yuan (+21.9% YoY) and net profit to mother of 50 billion yuan (+23.3% YoY). On top of the low base caused by the peak of infections last year, it successfully achieved high performance flexibility. The 24Q1 revenue was 6.18 billion yuan (+8.7% YoY), and net profit to mother was 890 million yuan (+10.4% YoY). Despite the late launch of spring clothing at the beginning of the year, there was steady growth, which is an excellent performance within the sector. 3) The proposed cash dividend for '23 is 2.69 billion yuan, with a cash dividend ratio of 91% and a dividend of 0.56 yuan per share. The dividend rate corresponding to the latest stock price exceeds 6%. At the same time, it is disclosed that the mid-term dividend will be increased by no more than 70% of the net profit due to mother during the period to increase shareholder returns.
Profitability has been steadily improving, and the quality of operations has been continuously optimized. According to the '23 Annual Report and '24 Quarterly Report:1) The expansion of direct management channels boosted the rise in gross margin. The gross profit margin for 23 years was 44.5% (+1.6 pct year over year), and the cost ratio for the period was 25.8% (+1.5pct year over year), of which the sales expenses ratio was 20.2% (+1.7 pct year over year), while management and R&D expenses improved, resulting in a net profit margin of 13.7% (+2.1pct year over year). The 24Q1 gross profit margin was 46.7% (+2.1pct year over year), a further significant increase. 2) Improved inventory turnover and strong cash flow. At the end of 23, inventory was 9.34 billion yuan (-1.3% YoY), and the number of inventory turnover days was 282 days (YoY -16 days). Net operating cash flow of $5.23 billion in '23 (+66.7% YoY), a record high! By the end of the 24Q1 period, monetary capital on account alone had reached 13 billion yuan, laying the foundation for resilience to risks and high dividends.
Looking at each brand, the main brand is expanding direct management, group buying customization is growing faster, and other brands are lightweight. According to the 23rd Annual Report and the 24-year Quarterly Report: 1) Heilan Home Series: 23-year revenue of 16.46 billion yuan (YoY +19.7%), gross profit margin of 45.2% (YoY +3.0pct), 24Q1 revenue of 5.13 billion yuan (+6.5% YoY), gross profit margin of 46.4% (+0.6pct year over year).
The total number of stores at the end of the 24Q1 period was 5954 (net increase of 34 in 23, net decrease of 22 in 24Q1), including 1,267 direct-run stores (net increase of 198 in 23, net increase of 15 in 24Q1), franchise stores and 4687 others (net decrease of 164 in 23, net decrease of 37 in 24Q1). 2) Hailan Group Buying Customized Series: Revenue of 2.28 billion yuan (YoY +1.5%), gross profit margin of 46.8% (YoY -1.8pct). Affected by the pace of delivery, 24Q1 revenue was 550 million yuan (+54.2% YoY), which accelerated significantly. 3) Other brands: 23 billion yuan in revenue of 2.02 billion yuan (YoY +5.8%), gross profit margin of 50.2% (YoY -2.0pct), 24Q1 revenue of 370 million yuan (YoY -25.1%), gross profit margin of 58.7% (+3.25pct), total number of stores 892 at the end of the 24Q1 period (net decrease of 1,376 in 23, net decrease of 9 in 24Q1). “Boys and girls” have been transferred.
By channel, offline direct sales are growing strongly, and an explosion in online e-commerce can be expected. According to the 23rd Annual Report and Q1 Report for '24:1) Offline: Revenue of $17.5 billion (YoY +16.3%), gross profit margin of 45.4% (YoY +0.5pct), excluding the customized portion of Heilan Group Purchase, and direct channel revenue of 4.53 billion yuan (+49.3% YoY). Direct sales maintained high double-digit growth in 24Q1, driving steady offline growth. 2) Online: 23 billion yuan in revenue (+14.1% YoY), contributing 15.7% to main business (-0.3 pct year over year), gross profit margin of 48.2% (+8.3 pct). We believe that Hailan's cost-effective positioning is well suited to the current rise in pragmatic consumerism. The e-commerce explosion can be expected, which is reflected in a 34% year-on-year increase in online revenue in 24Q1.
Positioned as a cost-effective high-quality national clothing group, in line with the K-type differentiation characteristics of current consumption, and maintains a “buy” rating. Considering the expansion of the company's direct management, the explosion of e-commerce, and the upward trend in gross margin, we raised our 24-25 and 26-year profit forecast. We expect net profit to be 33.3/37.6/4.22 billion yuan for 24-26 years (32.7/3.66 billion yuan for 24-25), corresponding PE is 13/12/10 times. It has both undervaluation, high dividends, and steady growth, maintaining the “buy” rating.
Risk warning: Domestic retail recovery after the epidemic fell short of expectations; residents' income expectations declined, suppressing demand for optional consumption