Key points of investment
Revenue -4%, net profit to mother -33%, 23Q1 is a high base. After excluding Douyin, income stabilized 24Q1 revenue -4% year-on-year, and net profit to mother was -33% year-on-year. Under high base, performance was under pressure in the short term. 24Q1 revenue of $3.0 billion (-4%), net profit attributable to mother of $25 million (-33%), net profit of non-return to mother of $23 million (-35%).
23Q1 benefited from Douyin's local lifestyle as a high base, and 24Q1 revenue remained stable after exclusion. In 23Q1, Douyin achieved a “good start” in local life, converting store write-off revenue of 377.66 million yuan, which is a high base. 24Q1 was affected by changes in platform traffic support policies, online peer competition and diversion, and offline store sales carrying capacity, etc., and the write-off revenue fell back to 14.397 million yuan (-55%). Excluding Douyin's local lifestyle, 24Q1 revenue was 280 million yuan, +1.3% over the same period last year.
Dividends are planned to be distributed in mid-'24 or before the Spring Festival, with a maximum ratio of 60%. The company plans to pay dividends in mid-24 (including half a year and the first three quarters) or before the Spring Festival. The maximum cumulative dividend limit for the current period is 60% of net profit to mother.
Gross profit margin was stable year over year, seasonal fluctuations were high, interest rates were rising, and net profit margins declined somewhat. Gross profit margin 59% (-0.5% YoY, -11.7% month-on-month), net profit margin 8.5% (YoY -3.9%, -3.4% YoY), sales/management/R&D expenses ratio 39.7%/7.2%/0.4%, YoY +3.3%/+0.4%, -5.4%/-2.8%/-0.2% month-on-month.
Joining is progressing steadily, and the sinking market continues to expand
As of 24Q1, the Concrete Glasses Alliance platform had a total of 9,134 registered users, an increase of 96 over the end of 23. The total number of registered users was 598, an increase of 91 over 23Q3. The company will join the (Stone Artificial) brand as an important way to expand the sinking market. In the future, it will rely on a scientific and efficient franchise platform to export many years of experience and capabilities in the eyewear industry, gradually optimize the franchise mechanism, strictly review franchisee qualifications, provide franchisees with multi-dimensional capabilities such as products, traffic, training, and marketing, enhance the overall competitiveness of franchise stores, and further strengthen the hematopoietic capacity of the franchise business.
The omni-channel layout continues to deepen. Online, local lifestyle, shopping malls and medical institution stores are the three major growth points 1) Online: Tmall, DeWoo, JD, and Pinduoduo official flag+WeChat Mall+Douyin live broadcast room are making more efforts, and the growth rate is beautiful (15.6% of revenue in '23, up 45% from the same period);
2) Local life: Douyin, Volkswagen, and Meituan fully blossomed, and their share increased rapidly (13.8% of revenue in '23, up 79% from the same period);
3) Shopping malls and medical institution stores: High growth rate, high floor efficiency and high profit, which strongly drives profitability improvement (revenue increased 26% and profit increased 50% in '23).
Profit prediction and valuation: Steady expansion of offline stores, gradual increase in local lifestyle contribution, increase in the number of franchised stores, and further development of online channels. The company's net profit for 24-26 is estimated to be 1.53/1.80/211 million yuan, an increase of 19%/18%/17%. Corresponding PE is 18/16/13X, maintaining a “buy” rating.
Risk warning: Store expansion falls short of expectations; industry competition intensifies, etc.