Maintain an “Overweight” rating. Considering the company's price reduction and slowing store expansion, the 2024-2025 EPS forecast was lowered to 0.49 (-0.46) /0.62 (-0.56) yuan, and an additional 0.81 yuan was added in 2026. Referring to the industry's strong repair flexibility, the 2024 38XPE was given, and the target price was lowered to 18.8 yuan.
Performance fell short of expectations. The company's 2023 revenue was 8.046 billion yuan, -14.76% year on year, net profit to mother of 180 million yuan, -46.26% year on year, net profit minus 65 billion yuan, -68.82% year on year; 2023Q4 revenue of 2,046 billion yuan, -16.02% year on year, net profit attributable to mother -0.11 billion yuan, year-on-year conversion loss, net profit minus 57 million yuan, loss increased year on year. Non-recurring profit and loss is expected to be mainly investment income from disposal of Zhao Yiming's shares; 2024Q1 revenue is 2,451 million yuan, +2.79% year over year Net profit from mother was 62 million yuan, or -57.98% year on year, after deducting non-net profit of 55 million yuan, or -48.69% year on year.
The impact of competition has intensified, and price adjustments have an impact on short-term profits. E-commerce/franchise/direct/group purchase revenue in 2023 was -33%/-7%/+22%/-1%, 2024Q1 was +7%/-16%/+10%/+57%. The pressure on e-commerce business is expected to be mainly due to the impact of platform traffic and intense competition; 2023/2024Q1 direct stores increased net 258/-83, respectively, and the net increase of franchisees was -191/-57, respectively. Under competition, the company actively slowed down store openings and optimized models. 2023Q4/2024Q1 gross margin was -0.4/-2.7 pct year on year, respectively. Sales rates are expected to be +1.4/0.4 pct year on year, mainly due to product price restructuring. The main reason is that direct management share is expected to increase, and net profit margin to mother is -1.3/-3.7 pct to 2.2%/2.5%, respectively.
Optimized positioning and gradual adjustments can be expected. The company will adapt to demand trends and improve the efficiency of the upstream supply chain to enhance product quality/price ratio. It will gradually strengthen consumer communication and value perception, adjust offline store models, strengthen product differentiation and accurate operation online, and it is worth looking forward to gradual steady improvement.
Risk warning: macroeconomic fluctuations, increased market competition, and rising costs.