Core views:

The company is a high-end children's clothing operator, and the e-commerce channel has obvious advantages. The company was founded in 1992 and listed in 2022. The compound growth rates of the company's revenue/net profit to mother in 2014-2021 reached 20.82% and 22.92% respectively, growing rapidly. In 2023, the company achieved revenue of 1.152 billion yuan, +0.76% year-on-year, and net profit of 0.18 billion yuan, or +8.55% year-on-year, of which direct operation/franchise/e-commerce revenue accounted for 19.93%/14.74%/65.33%, respectively. By the end of 2023, the company had 539 stores (including 165 directly managed and 374 franchised).

China's children's clothing market is growing fast, large in scale and low in concentration. According to Euromonitor data quoted by Bloomberg, the size of China's children's clothing market reached 55.033 billion US dollars in 2023, an increase of 14.16% over the previous year. The CAGR of China's children's clothing market reached 11.78% in 2003-2023, and 3.54%/1.88% and 0.28% respectively during the same period. The total market share of the top 12 domestic children's clothing companies in 2021-2023 was 18.1%/17.0%/15.4%, respectively. Among them, only the Balabara brand had a market share greater than 5%, and the concentration of the children's clothing market was scattered.

The company has extensive experience in the children's clothing multi-brand matrix. Taking back the leisure adult clothing business will further expand the range and is expected to achieve high growth. The company successfully implemented a children's clothing multi-brand matrix, and each brand positioned different consumer markets, forming a multi-dimensional and deep coverage and penetration of the children's clothing market. In 2024, the company will take back its own adult clothing business and upgrade the brand in various aspects such as products and channels. While ensuring the high-quality development of the original children's clothing business, it will vigorously develop into a menswear business, which is expected to help the company achieve rapid growth in its business.

Profit forecast and investment advice: The company's EPS is expected to be 2.14 yuan/share, 2.63 yuan/share, and 3.25 yuan/share in 2024-2026, respectively. Referring to comparable company valuations, the comprehensive company took back the business changes, profitability, and future performance growth rate of the company. The company was given 12XPE in 2024, corresponding to a reasonable value of 25.66 yuan/share, covering the first time, and giving it a “buy” rating.

Risk warning. Competition in the children's clothing industry is increasing risks, brand licensing risks, inventory and price decline risks.