Incident: Kids King releases 2024H1 earnings report.
① 2024H1: Revenue of 4.52 billion yuan, +8.7% year over year; net profit to mother of 0.08 billion yuan, +14.7% year over year, mainly due to the increase in profit after the Leyou merger.
② 2024Q2: Revenue of 2.33 billion yuan, +12.8% YoY; net profit to mother 0.07 billion yuan, +9.9% YoY.
③ Revenue spin-off: Revenue from mother and child products in 2024H1 was 3.96 billion yuan, +10.1% year over year; by product, revenue from milk powder and supplies was 2.43 billion yuan and 0.64 billion yuan, respectively, +13.5% and -6.5%.
Vigorously develop our own brands and increase the proportion of non-standard ones. 24H1 differentiated supply chain revenue (including its own brand) was 0.5 billion yuan, +65.5% year over year, accounting for 12.74% of sales revenue for mother and child products. At the same time, the company continues to develop short-chain self-extracting explosives around new household consumption. 24H1 has developed and launched a total of 52 products to promote an increase in gross margin and an improvement in the product structure.
Continue to upgrade the children's living room. 24H1 completed the renovation and reopening of 6 children's living centers. The transaction volume for CUHK students increased steadily, and member stickiness continued to increase. As of 24H1, Leyou had 531 directly-managed and managed stores, and Kids King had 504 stores. In total, 45 new stores were added and 35 closed in 24H1.
Single-store revenue is under slight pressure. The average revenue of Kidowang Store in the first half of 2024 was 6.224 million yuan, -14.3% year-on-year. The store floor efficiency was 2715.8 yuan/square meter, -13.4% year-on-year; Leyou 24H1 direct-run store had a floor space efficiency of 5,803.7 yuan/square meter.
Make every effort to develop online channels. 24H1's online sales revenue was 1.82 billion yuan, accounting for 46.0% of maternal and child product sales revenue, +19.3pcts year-on-year. By the end of June 2024, the app had over 60 million users, over 65 million applet users, and over 10 million enterprise and micro private domain service users.
Gross margin was slightly optimized. The gross profit margin of 24H1 was 29.7%, +1.6 pcts; among them, the gross profit margin of maternal and child products was 21.3%, +2.9 pcts year over year, mainly due to the increase in self-purchased products. 24H1 sales/management/R&D/finance expenses were 20.5%/5.0%/0.4%/1.4%, respectively, +1.0/-0.5/-0.2/+0.5pcts compared to the same period. 24H1 net margin was 1.7%, +0.1pcts year over year.
The first franchise store opened. In July '24, Kids' first franchise store was successfully opened in Guanghan, Sichuan. Continued promotion of the franchise model is expected to open up store space.
Profit forecast and valuation: In 2023, the company acquired Leyou and established a dual-brand operating model. In 24, as the integration of the company and Leyou deepened, the number of stores is expected to enter a growth channel. With the company's omni-channel full-scenario operation capability, driven by the company's digital capabilities, it is expected to achieve steady growth in performance. The overall forecast is that 2024-2025, the company's net profit will be 0.28/0.39 billion yuan, corresponding to the current 21x/15xPE, giving it a “recommended” rating.
Risk warning: store expansion falls short of expectations, risk of declining fertility rate, consumption recovery falls short of expectations