Description of the event
The company achieved revenue, net profit to mother, and net profit after deducting non-net profit of 35.36, 9.11, and 867 million yuan in 2023, with year-on-year changes of 22.6%, 25.2%, and 29.4%. 2024Q1 achieved revenue, net profit attributable to mother, and net profit after deducting non-net profit of 1,268 million yuan, 3.62, and 351 million yuan, with year-on-year changes of 17.6%, 20.4%, and 21.9%. The 2023 cash dividend was 570 million yuan, with a dividend ratio of 63%, and the latest dividend rate was 3.4%.
Incident comments
Direct sales maintained high growth, and H2 e-commerce recovered month-on-month. By channel, the company's direct marketing/franchise/e-commerce channels achieved revenue of 23.9/92/190 million yuan respectively in 2023, +34.6%/-2.1%/+16.1% year-on-year. Direct revenue maintained a high increase under a low base and improved store efficiency. The month-on-month improvement in H2 e-commerce revenue growth (+11pct to 21.6%) is expected to decrease mainly due to online discounts.
The net number of stores opened 64 to 1,255 throughout the year was +5%, with direct marketing/franchise channels ranging from 28/36 to 607/648 stores, +5%/6% compared to the same period. The speed of the company's store opening slowed slightly due to improved store efficiency focusing on old stores, but it is expected that it will gradually return to a normal center in the future.
The gross margin reached the best in history, and the management and marketing expenses ratio increased. The gross margin in 2023 was +1.2pct to 78.6% year on year. It is expected that under the upward trend of brand power, the increase in the price increase ratio driven by product structure & supply chain optimization, and the increase in the share of direct management channels will drive the increase in gross margin growth. 2024Q1 gross margin remained high, +0.32pct YoY to 76.03%. The cost rate for the full year of 2023 was +1.8 pct year over year, mainly due to increased management and marketing expenses due to increased performance and increases in employee remuneration and travel expenses (management/sales expense ratio +1.2 pct/+1.1 pct year over year). In addition, benefiting from improved inventory turnover and improved inventory structure, asset impairment losses for the year were -40 million yuan year on year, but investment income of -0.2 billion yuan year on year dragged down profits to a certain extent. Overall, the net profit margin for the year was +0.54 pct year over year to 25.8%. The 2024Q1 company's expense ratio fell to 41.33% during the period under active operating leverage, and the net interest rate was +7.9pct month-on-month to 28.6%.
The optimization of internal operating efficiency continues to advance, and the management quality performance is excellent. At the end of 2023, the company's inventory/accounts receivable turnover days were -42 days/-4 days year-on-year, respectively, and the number of 2024Q1 inventory turnover days was -40 days year-on-year, respectively. The inventory cycle improved significantly. Looking at the inventory structure, the proportion of 1 year/1-2 years/2-3 years/3 years or more was 57.9%/29.3%/10.8%/2.0%, respectively. Compared with +3.4pct/+4.6pct/-2.2pct/ -5.8pct, old goods were removed smoothly, the proportion of products in the current season increased, and the structure continued to be optimized.
In 2023A/2024Q1, the company's net operating cash flow was +37.53%/+7.34% year-on-year, and the cash flow/net profit reached 142%/150% respectively. The current available capital is estimated to reach 3.2 billion yuan, and the operating quality is improving.
Outlook: The company accurately positions itself on the high-end sports and fashion boom circuit, adheres to the new brand concept of three highs and one, and promotes rapid business growth based on expanding categories, expanding channels, and optimizing channel quality. Starting in 2022, Biyin Levin will use its category advantages to create a “junior T-shirt expert” and launch a “category leading” strategy upgrade; establish a golf division to seize the high-end fashion sports market; and strengthen marketing promotion through Forbidden City Cultural Co-branding, star cooperation, and tournament sponsorship. The acquisition of a series of new brands this year is also expected to gradually improve the brand hierarchy and build a high-end brand group. The company is expected to achieve net profit of 11.4/13.7/1.63 billion yuan in 2024-2026. The current price corresponds to PE 15/13/11X, respectively, and maintains a “buy” rating.
Risk warning
1. Fluctuations in the retail environment;
2. Inventory risk;
3. The cost investment conversion effect is weak.