1Q24 results were slightly better than our expectations
The company's 1Q24 revenue increased 26% year over year to 3.7 billion yuan, and non-IFRS net profit increased 28% year over year to 620 million yuan. The performance was slightly better than our expectations, mainly due to the higher than expected increase in overseas direct revenue.
Under a high base, domestic same-store stores are basically stable, and O2O is growing rapidly. Although the improvement in the retail environment in 1Q23 brought about a high base, thanks to the accurate positioning of “cost-effective + IP” after the Mingchuang Premium brand upgrade, Mingchuang Premium's domestic business revenue also increased 14% to 2.3 billion yuan, of which offline revenue also increased 16% to 2.1 billion yuan, the average number of stores increased +19% year-on-year, and same-store sales fell slightly by about 2% year on year under a high base (about -5% year on year in the same store in January-February, and the same YTD store was basically flat year on year), mainly affected by the number of customer orders. O2O business revenue increased by more than 80% to achieve rapid growth, effectively driving same-store sales growth. The net number of domestic stores opened during the season was 108 to 4,034, and about 53% of the new stores were located in Tier 1 and 2 cities.
TOPTOY 1Q24's revenue also increased 55% to 210 million yuan, and the same store increased 26%. Product portfolio optimization led to a gross margin increase of about 8ppt. Management raised the forecast for opening stores for the whole year to a net opening of 100 stores.
Overseas direct sales markets continued to grow rapidly, and the contribution of North America and Europe increased rapidly. Overseas revenue also increased 53% to 1.2 billion yuan in 1Q24, better than management's expectations. By channel, agent/direct market revenue increased 23%/84%, GMV increased 35%/78%, and same-store sales increased 18%/32%, respectively. Direct sales accounted for 58% of revenue during the quarter, with year-on-month increases. In key markets, GMV in North America and Europe increased by nearly 110% and 80% + respectively, and the total contribution of GMV was over 20%. The number of net overseas stores opened during the quarter was 109 to 2,596, of which 67 were directly managed (mainly contributed by Indonesia and the US).
Gross profit margins continued to reach new highs, and overseas expansion and brand upgrades led to cost investment. The gross margin of 1Q24 also increased by 4.1ppt to 43.4%, mainly due to the increase in the share of overseas direct business with high gross margin and optimization of TOPTOY's product portfolio. After excluding equity incentive costs, the sales expense ratio also increased by 3.4 ppt, mainly due to overseas business expansion, increased personnel and rental expenses, and increased advertising expenses due to brand upgrades; the management fee ratio was basically stable over the same period last year. Other net revenue of $15 billion (vs. $23.3 billion in 1Q23) boosted profit, while non-IFRS net profit increased 28% to $620 million in the same quarter.
Development trends
The company continues to advance its IP strategy. Currently, IP contributes about 25%/40% + of domestic sales and overseas deliveries, respectively. Management plans to open more high-quality stores before the 4Q24 overseas peak season begins.
Profit forecasting and valuation
Due to the company's fiscal year adjustments, we introduced a 2024/25 EPS forecast of $2.15/2.59. Currently, Hong Kong stocks correspond to 21/17 times 2024/25 non-IFRS P/E, and US stocks correspond to 20/17 times. Maintain Hong Kong/US stocks outperforming the industry rating. Considering that the company's overseas business continues to grow rapidly, the target price of Hong Kong stocks and US stocks was raised by 13% to HK$61.69/$31.84, corresponding 25/21 times the 2024/25 non-IFRS P/E and 25%/26% upward space for Hong Kong equities/US stocks.
risks
The retail environment fell short of expectations, channel store openings fell short of expectations, and new business development fell short of expectations.