Description of the event

The company released a quick report on its 2024 semi-annual results. 2024H1, the company's revenue +24.5% YoY to 11.47 billion yuan, net profit to mother +29.0% YoY to 1.88 billion yuan, after deducting non-net profit +28.4% YoY to 1.84 billion yuan. In 2024Q2, the company's revenue was +20.8% YoY to 6.71 billion yuan (at the center of the forecast), net profit to mother +11.9% YoY to 1.09 billion yuan (below the forecast limit), and +10.8% YoY to 1.07 billion yuan after deducting non-net profit YoY (falling below the forecast limit).

Incident comments

Under a low base, sales increased year-on-year, and the rate of increase in unit prices slowed

In the 2024Q2 RMB caliber, the company's revenue was 6.71 billion yuan (+20.8% /USD +18.7%), net profit to mother was 1.09 billion yuan (+11.9% /USD +9.8%), and the net interest rate was -1.3 pct/month-on-month -0.3 pct to 16.3%.

In terms of volume and price breakdown, Q2 sales volume was about 0.062 billion pairs (+18.2% YoY); unit price was about 108.1 yuan/pair (YoY +2.3%), USDASP +0.5% YoY. The expected slight increase in the US dollar unit price is mainly due to a high base due to the increase in the share of high unit price products dominated by new customers in the same period last year, and the average price of each brand is relatively stable year over year.

Gross margin increased year-on-year, and fee control contributed little. The high exchange base dragged down the net interest rate decline. Gross margin is expected to increase year-on-year in 2024Q2 due to the increase in order volume and continuous optimization of the product structure during the peak season, but the decline in new factories dragged it down. Furthermore, the depreciation of the Vietnamese dong in Q2 contributed partially to gross margin. On the cost side, the company continues fee control and refined management, and the management and marketing expenses rate is expected to drop slightly compared to the same period last year. In terms of net interest rate, the high exchange base dragged down Q2 net interest rate by 1.3 pct year on year. If the impact of exchange is excluded, the net interest rate due to mother is expected to be about +0.5 pct year on year. The net interest rate of over 16% under the launch of the new plant confirms its ability to manage refined profit margins.

Outlook: Better stability and stronger growth will bring premiums in the short term. Lower base+improved downstream inventory will drive improved order acceptance. The recovery of old customers and the continued high increase in new customers are expected to perform well in 2024. The company's strong confidence and planning in profit margins during the capacity expansion cycle guarantees improved performance flexibility when following the trend.

In the long term, the company's strategy of expanding customers and production capacity continues to advance. After the overseas consumption environment stabilizes, it is expected that it will still enjoy long-term growth brought about by the high downstream boom and order inclination. The estimated net profit for 2024-2026 is 3.9, 4.53, and 5.24 billion yuan, +22%, +16% compared to the same period last year. The PE corresponding to the current price is 17, 14, and 12X, maintaining the “buy” rating.

Risk warning

1. Overseas macroeconomic fluctuations;

2. Brand inventory removal falls short of expectations;

3. The progress of production capacity investment fell short of expectations.