Revenue in '23 was -0.47% year over year, and net profit to mother increased significantly year over year. The company achieved operating income of 2.33 billion yuan in 2023, -0.47% year on year; realized net profit of 0.3 billion yuan, +99.51% year over year; realized net profit after deduction of 12 million yuan, +267.46% year on year; basic earnings per share was 0.01 yuan, compared to 0.01 yuan in the same period last year. The reasons for the increase in the company's net profit were mainly due to an increase in the company's gross margin of 488.777 million yuan, a decrease in credit impairment losses of 129.577 million yuan after the recovery of the company's accounts receivable, and a decrease in investment income of 358.314 million yuan (revenue from projects invested by the company's Wuxi Red Earth Honglu Venture Capital Enterprise (Limited Partnership) decreased by 285.433 million yuan year-on-year) and income tax. The main reason for the decline in the company's revenue was a decrease of 48,408 million yuan in the company's cloth business.

Gross margin increased significantly, and investment in sales expenses increased. The company's gross margin in 2023 was 36.33%, +2.26pct. On the cost side, the cost rate for the 2023 period was 36.72%, +0.40pct year on year. Among them, sales expense rate/ management expense rate/ R&D expense rate/ financial expense ratio were 26.82%/8.18%/0.80%/0.91%, respectively, +0.31pct/-0.09pct/-0.12pct/+0.30pct, respectively. The company's net profit margin in 2023 was 1.34%, up 0.64pct year over year.

The number of Hodo brand stores continues to increase, and the gross margin of directly-managed stores has increased. By product, in 2023, the company's apparel, printing and dyeing, fabric, and others achieved revenue of 2,070 million yuan/0.69 billion yuan/083 million yuan/0.66 million yuan, respectively, of +1.39%/+7.36%/-36.95%/-15.43%, with gross margins of 38.35%/8.85%/12.94%/26.79%, respectively, and +2.43pct/+1.40pct/-5.61pct/-1.55pct. In 2023, the number of direct stores under the company's Hodo brand was 476, a net increase of 77; the number of franchised stores was 526, a net increase of 3. Among them, direct-run stores and franchise stores achieved revenue of 627 million yuan/376 million yuan respectively, a year-on-year change of +16.08%/-12.18%, gross margin of 59.83%/25.26%, respectively, and a year-on-year change of +2.01 pct/-8.61 pct. The company is channel-based, reaching target customers offline in multiple scenarios, and improving the quality of channel operation: on the one hand, it accelerates cooperation with high-potential channel providers and joint ventures based on brand positioning and strategy implementation stages, and uses such mainstream channels to efficiently obtain target customers; on the other hand, the operating model is beginning to be shown, and replicated using Wuxi as a model to form a number of regional benchmarks, using comfortable main products, contextual store displays, and precise member marketing as a starting point to enhance the value attributes of offline store experiences, social networking, and service, and gradually promote the national market. Systematic upgrading of the store. The company continues to grow in volume online, gathering offline stores and e-commerce platforms to create diverse consumption scenarios, focusing on product strategy, refined crowd operation, content strategy, etc., focusing on the pace of each platform's activities to leverage public and private traffic, focusing on understanding the cultivation and transformation situation of people from a product perspective, and meeting the needs of various consumer power groups with high-value and differentiated products. During the reporting period, the company's self-broadcast sales business and daily sales at Tmall stores grew rapidly. In addition, the company was selected as a “National E-Commerce Demonstration Enterprise” by the Ministry of Commerce.

Release a repurchase plan and implement the “Improve Quality, Increase Efficiency, and Focus on Return” action. On April 15, 2024, the company issued the “Plan to Repurchase Shares through Centralized Auction Transactions”. It plans to use its own capital of 20 to 40 million yuan to repurchase some of the company's public shares for an equity incentive plan. The purpose of the repurchase is based on confidence in the company's future and a reasonable judgment on the company's stock value. In order to implement the “investor-oriented” development concept of listed companies, safeguard the interests of investors, promote the company's “improve quality, efficiency and return” actions, and promote investors' confidence in the company's future sustainable development and recognition of the company's value. Adhering to long-term values, the company firmly promotes the “classic and comfortable menswear” strategy to build a high-quality brand. Focusing on the annual priority of “amplifying the achievements of transformation and increasing business breakthroughs”, the company will enhance its core competitiveness in all aspects in terms of “pursuing comfort products, consolidating the perception of comfort, and upgrading the comfort experience”, forming a first-mover effect on key tracks, consolidating the leading edge of the “comfortable menswear track pioneer”, and continuously releasing new strategic achievements.

Investment advice: The company has a 65-year brand history, a strong foundation, focusing on classic and comfortable menswear strategies, increasing independent product development and creating a new image of all-round comfort to meet the needs of consumers for comfortable menswear products. The company is actively upgrading channels. It is expected that online technology will continue to gain strength in the future, and the company still has plenty of room for development. It is predicted that the company's EPS for 2024-2026 will be 0.03 yuan, 0.03 yuan, and 0.04 yuan respectively, and the corresponding PE will be 96.4X, 80.8X, and 71.3X, respectively, maintaining an “increase in holdings” investment rating.

Risk warning: market risk, product development risk, operation management risk, credit risk, liquidity risk.