Brief performance review
On May 14, the company disclosed the 24Q1 financial report, with 24Q1 revenue of 3.72 billion yuan, +26% year on year, adjusted net profit of 620 million yuan, +27.7% year on year, net interest rate 16.6% (+0.2pct), domestic/overseas revenue of 25.0/1.22 billion yuan (+16%/+53% year over year), and overseas revenue exceeded expectations.
Management analysis
Domestic: Tier 1 and 2 stores continue to be displayed at high speed, increasing product strength, optimizing store locations, and promoting future same-store growth under the IP strategy: 1) Domestic innovation: 24Q1 offline revenue of 2.12 billion yuan (+15.6%), number of stores +18.7% YoY /same store sales was 98% last year. As of Q1, the number of stores was 4034, +651 compared to the previous year (+108 compared to VS4Q23), with a net month-on-month increase of +10/+47 of the first- and second-tier stores; with IP and product cooperation with Chiikawa and others Optimization: Year-to-date same-store sales have returned to 100% of the same period in '23. 2) TOP TOY: Revenue of 214 million yuan (+55.1%), product optimization led to accelerated recovery of single stores, Q1 store/same store +32.2%/+26%.
Overseas: Same-store growth is impressive, and direct management development opens up room for medium term growth. In 24Q1, the number of stores/same stores increased by +19.7%/+21%, the number of stores was 2,596 (YoY +465/+109), and the number of agent/direct market stores was +42/+67 month-on-month. The direct-run market, led by the United States, accelerated the opening of stores along with brand strength improvement and store location optimization. The Latin American store performed well. The growth rate of the same store in North America/ Latin America/ Asia (outside China)/Europe was +32%/+25%/+19%/+13%, and the number of new stores added +19/+11/+69/+6 compared to the previous month.
Excellent profitability performance, mainly due to the increase in the share of overseas direct management and TOPTOY's superior performance: Q1 gross profit margin of 43.4% (+4.1/+0.3pct month-on-month) reached a record high, mainly due to:
① The high-margin overseas direct market represented by the United States is growing rapidly: the Q1 direct sales market accounts for 58% of overseas revenue (+12pct); ② TOPTOY is growing rapidly; ③ optimization of product structures such as IP. Q1 Sales Expenses/ Management Expenses Ratio 18%/5% (+3.4/-0.1pct), which is expected to be mainly affected by rent, depreciation and amortization of directly-managed stores.
The cost-effective IP strategy is effective, and offline interest consumption is a pioneer in going overseas. In '24, the company plans to increase the number of stores globally by 900-1100. Along with the promotion of the famous creative theme & big store strategy, and the optimization of Toptoy store formats, the overseas direct business, represented by North America, is in a period of accelerated development, and growth can be expected under the guidance of the new five-year strategic goals.
Profit Forecasts, Valuations, and Ratings
The company innovates IP products based on consumer insight, and has outstanding capabilities in supply chain integration and global development. We expect net profit to be 28.8/36.4/4.44 billion yuan in 24-26, respectively. The P/E corresponding to the current stock price is 20/16/13X, respectively, maintaining a “buy” rating.
Risk warning
Competition in the industry intensified, overseas store opening progress fell short of expectations, and store expansion and sub-brand development fell short of expectations.