Introduction to this report:
FY2024Q2 performance is expected to be in line with expectations, and domestic business will benefit from Chiikawa's boost. Although the pace of overseas agent shipments fluctuates from quarter to quarter due to shipping charges, overseas store expansion is gaining momentum, and H2 contributions can be expected to be released.
Key points of investment:
Maintain an “Overweight” rating. The company maintains an estimated 2024-2026 revenue of 17.356/20.98/25.101 billion yuan, respectively, and adjusted net profit of 2.869/3.448/4.132 billion yuan, respectively. Considering that domestic store expansion is expected to be matched and released, overseas store expansion and superposition IP strategies are being promoted, and there is room for growth. 20xPE will be given in 2024, with a target price of HK$49.60, maintaining the “gain” rating.
FY2024Q2 results are expected to be in line with expectations. Considering Chiikawa's boost to domestic business and quarterly fluctuations in the pace of overseas agent shipments, we expect FY2024Q2's revenue to grow by about 23.5%, corresponding revenue of about 4.017 billion yuan; FY2024Q2 domestic revenue is expected to grow by about 17%, and the overseas direct/agency market growth rate is 60%/15%, respectively.
The FY2024Q2 domestic market is boosted by Chiikawa's sales, and the overseas market IP strategy is expected to increase significantly. FY2024Q2 gross margin is expected to be stable month-on-month and year-on-year increase; considering FY2024Q2's incentive expenses of about 80 million yuan for stock payments in a single quarter and upfront costs due to accelerated overseas store expansion, the estimated sales and management expenses ratio is 26%, and the adjusted operating margin is about 19%. The adjusted net profit margin is about 16%, and the corresponding adjusted net profit is about 16%. 0.645 billion yuan.
Chiikawa boosts domestic business, and the release of overseas stores can be expected. We expect a net increase of 70-80 domestic stores and a net increase of about 150 overseas stores in 2024Q2, which is in line with the annual pace of opening stores (annual domestic net increase of 350-450, and overseas net increase of 550-650 stores). Chiikawa's sales have been booming since the national pop-up launch at the end of March. It is expected that the company will enjoy exclusive IP co-branded product market dividends in 24 years. It is expected to replicate the sales performance of the Barbie series in 2023, support same-store sales growth stronger than the customer flow performance in the business district, further boost franchisees' willingness to open stores and agents to pick up goods, and drive continued growth and release of performance.
IP boosts brand potential, and IP Design Retail Group is worth looking forward to. Based on: ① the continuous advancement of major domestic store strategies and the continued expansion of stores in high-tier cities, which is expected to drive a continuous increase in the share of IP sales; ② driven by direct management in overseas markets, with the gradual release of operating leverage as the product portfolio is optimized and the share of IP sales increases; ③ benefiting from the increase in the share of high-margin products, driving the increase in TOP TOY's gross margin; the company's overall gross margin is expected to increase further. With the further release of overseas direct business store efficiency, there is still plenty of room for optimization, and there is still plenty of room for optimization of the overall profit side.
Risk warning: Competition in the industry intensifies; the risk of store expansion and store efficiency falling short of expectations.