Pou Sheng International distributed a mid-term dividend of HK$0.02 per share and a special dividend of HK$0.02 per share for the first time, with a total dividend rate of 63%.
According to the research report released by BOCOM International on Zhitong Finance APP, it maintains a "buy" rating on Pou Sheng International (03813) and lowers earnings per share expectations due to pressure on high-end pricing and high-tier cities. However, given the improvement in profit margins and the increase in dividend rates, the bank believes that Pou Sheng has the potential for valuation growth. The target price has been lowered from HKD1.46 to HKD1.01.
Bocom International's main points are as follows:
Net profit in the first half of 2024 increased by double digits year-on-year, and a special dividend was distributed for the first time.
In the first half of the year, Pou Sheng's sales revenue fell by 8.9% year-on-year to RMB 9.983 billion, but due to effective discount control, gross margin and operating profit margin both increased by 0.7/0.5 percentage points year-on-year to 34.2%/4.8%, respectively. Net profit attributable to equity holders increased by 10.2% year-on-year to RMB 0.335 billion, and the profit margin increased by 0.6 percentage points to 3.4% (2.8% in the first half of 2023). Pou Sheng distributed a mid-term dividend of HK$0.02 per share and a special dividend of HK$0.02 per share for the first time, with a total dividend rate of 63%.
High-tier city passenger flow is under pressure, and revenue performance in the second half of the year is expected to be similar to that in the first half of the year.
In the first half of the year, the physical store passenger flow in high-tier cities at Pou Sheng decreased by more than 30% year-on-year. In contrast, passenger flow in low-tier cities was relatively stable, and franchised stores performed well. At the same time, the trend of high-end price recovery was slow compared to the shoe category at the middle-low end. The pressure of high-tier city passenger flow and high-end price products caused Pou Sheng's comparable store sales in the first half of 2024 to decline by approximately 16.4%, some of which was offset by the integration of physical stores and the improvement in sales conversion rates. Looking forward, considering the pressure on store passenger flow in many places, the company prioritizes maintaining profitability, improving inventory management efficiency and sales efficiency, and accelerating penetration into low-tier cities.
Effective discount control has yielded results, and gross profit margin is expected to be stabilized in the second half of the year.
In the first half of the year, the company strictly controlled the discount levels in various channels, and the overall discount rate improved by a low single-digit year-on-year, leading to an increase in gross profit margin. Considering that offline channels still face pressure in the second half of the year and will offset the positive impact of continued discount control, Pou Sheng will accelerate the optimization of channel proportion, diversify B2C channels, especially WeChat, Douyin, and other micro-selling channels (online traffic contribution currently accounts for 15.1% of offline sales), in order to accelerate product circulation and maintain a balance between new product and inventory ratios. By relying on discount control and channel optimization, Pou Sheng is expected to stabilize gross profit margin performance in the second half of the year.
