2Q24 main brand turnover also increased by 10%. Weak markets showed business resilience. On July 11, Teb International announced the operating conditions in China for the 2nd quarter and the first half of '24. The distribution of main brands increased by 10% and a high number of units over the same period last year. At the same time, its terminal discount was well controlled, improving from 7-75% off in 1Q24 to 25% off in 2Q24; the inventory sales ratio was about 4 months, returning to pre-pandemic health levels. We believe that in an environment where 2Q23 has a high base and terminal consumption is under pressure, the company has shown strong operational resilience and continues to improve operational efficiency. Furthermore, considering the company's effective control of discounts and fees, and the contribution of the KP business to profits after a successful divestment in 3Q24, we expect the profit growth rate for the full year 24 to be superior to the revenue growth rate. We expect the company's revenue for 2024/2025/2026 to be 15.09/15.62/17.31 billion yuan, and the corresponding net profit to mother will be 1.29/1.49/1.71 billion yuan. Considering the current liquidity of the Hong Kong stock market and continued competition in the retail market, a “buy” rating is given based on 12.0x PE in 24 years (average PE value minus 0.5 standard deviation in the past 12 months), and the target price is HK$6.29.
The main brand has grown significantly online and remains steady offline
2Q24's main brand omnichannel retail sales were +10% YoY. Among them, online channels were the main driving force. E-commerce retail sales were +25% YoY, especially 618 GMV +50% YoY, which achieved impressive performance. On the one hand, it has benefited from the sales drive of the popular 360X carbon board running shoe to impress consumers through high quality and cost ratio; on the other hand, it has grasped current consumer trends, optimized the product portfolio, and launched a series of cost-effective products online. On the offline side, passenger flow was greatly affected by the weather during the period, and the company maintained steady development through store structure optimization and small opening. Looking ahead to the full year, we expect main brand turnover to achieve double-digit growth targets as pressure on the 2H24 base decreases.
Professional sports brands are growing strongly. The KP divestment brought profit elasticity 2Q24 professional sports brands achieved rapid growth, and performed well both online and offline. In particular, in terms of products, the market recognition of its leading running shoe category continues to increase, while continuously enriching commuter and retro series products to expand market space. In terms of marketing, Peng Yuyan was officially announced as the brand ambassador in early July. The future will increase brand exposure and enrich marketing activities. In terms of channels, we expect the stores to expand steadily according to the company's plan while maintaining the high-quality growth of individual stores. Looking ahead to the full year, we expect specialty sports brands to continue their growth momentum. Furthermore, the fashion sports brand KP business is expected to complete the divestment in 3Q24. Considering its pre-tax loss of 0.184 billion yuan in 2023, it is expected to drive the company's profitability to increase this year.
Risk warning: 1) Economic recovery fell short of expectations; industry competition intensified and retail discounts deepened; 2) the expansion of new brands in China fell short of expectations; 3) channel inventory removal was slow; 4) KP divestment fell short of expectations.