Incident Overview

2024H1 achieved revenue/net profit attributable to mothers/net profit after deduction of non-attributable net profit/operating cash flow of 20.78/0.148/0.361 billion yuan, respectively, up -1.59%/3.08%/4.30%/-4.43% year-on-year. According to our analysis, the decline in revenue was mainly due to the impact of online Douyin strategy adjustments and a decrease in offline traffic, but the profit side was better than the revenue side mainly due to a decline in financial expenses; the growth rate of deducted non-net profit was slightly higher than net profit returning to mother, mainly due to a 10% year-on-year decline in government subsidies to 0.011 billion yuan. The higher cash flow from operating activities than net profit is mainly due to a decrease in accounts receivable and inventory. Looking at a single quarter, 24Q2 revenue/net profit attributable to mothers/net profit without return to mother was 0.925/0.032/0.025 billion yuan, a year-on-year decrease of 2.03%/22.39%/21.37%. The decline in net profit was higher than revenue mainly due to increased expenses during the period, but financial expenses of 23Q4/24Q1/24Q2 decreased 0.019/0.013/0.01 billion yuan year-on-year.

On 24/7/21, the company announced that it plans to repurchase 0.5-1 million shares for no more than 9.95 yuan/share. As of 24/7/31, the company had repurchased 0.29 million shares at 6.95-6.99 yuan/share, with a repurchase amount of 2.022 million yuan.

Analytical judgment:

TW remained flat, Yunjin's revenue doubled, and the net increase of 69 TW franchises was in line with market expectations. By brand, (1) TW revenue was 1.622 billion yuan, up -0.25% year on year. Our analysis was mainly due to Douyin's strategy to support white label merchants, leading to a slowdown in online growth, a decline in offline customer traffic, and continued adjustments in direct-managed stores. Among them, direct/franchise/online revenue was 0.79/0.116/0.716 billion yuan respectively, up -8%/83%/1% year on year. Looking at further breakdown, the number of TW direct/franchise stores was 815/260, up -14%/36% year on year, respectively. It was 0.97/0.45 million yuan, up 8%/34% year over year. (2) VG's revenue was 0.397 billion yuan, or -12.55%. We analyzed that the decline in VG was mainly due to the sluggish boom on high-end women's clothing tracks, and VG was still closing inefficient stores; of these, direct/franchise/online revenue was 0.29/0.053/0.054 billion yuan, respectively, -17%/168%/-36% YoY; in terms of further breakdown, the number of VG direct-operated/franchised stores was 130/54, up -17%/15% year over year, respectively. Million yuan, up -0.09%/133.66% year over year.

(3) Yunjin's revenue/net profit/net margin was 0.043/0.009 billion yuan/ 22.24%, up 115%/134% /1.79PCT year on year. According to our analysis, Yunjin's doubling growth was mainly due to the rise of the new Chinese style and the beginning of the integration of brands online and offline. (4) By channel, online/direct/franchise revenue was 0.785/1.107/0.17 billion yuan respectively, up -0.37%/-9.41%/103.11% year-on-year. The total number of 24H1 stores was 1,260, a net decrease of 87, of which direct-management/franchise increased 163/76 to 946/314, an increase of -14.70%/31.93% year-on-year. Direct store efficiency/franchise store shipments for half a year were 1.1/0.35 million yuan respectively, an increase of 6%/54% year-on-year. (5) By region, East China, the core region, grew by 9%, while revenue in the rest of the regions declined: Northeast China/North China/South China/ Central China/ Northwest/ Southwest China achieved revenue of 1.08/1.23/5.58/0.96/0.103/0.115/0.174 billion yuan respectively, a year-on-year increase of -6.71%/-18.76%/9.09%/-5.54%/-8.87%/-2.00%/-10.83%.

Online gross margin declined and TW gross margin remained flat. The 24Q2 net margin decline was mainly due to the increase in the cost ratio during the period, but mainly due to the impact of strategic investment and bonuses. (1) 24H1 gross profit margin was 69.42%, up 0.46PCT year on year. By brand, VG/Yunjin/ TW gross margin was 75.51%/76.21%/67.58%, up 3.66/2.36/ -0.49PCT; by channel, online/offline gross margin was 63.89%/72.61%, up -1.17/1.48PCT year on year. (2) 24H1 net interest rate to mother was 7.12%, up 0.33PCT year on year, and sales/management/R&D/finance expense ratios were 50.49%/4.87%/3.13%/1.61%, respectively, up 0.21/0.99/0.47/ -0.99PCT. The increase in management expenses ratio was mainly due to an increase of 0.007 billion yuan in share payments; financial expenses fell 22.69 million, and the decline in the financial expense ratio was mainly due to repayment (short/long-term loans decreased by 0.49/0.31 billion yuan to 0.1/0.279 billion yuan) and debt swaps contributed to a decline in interest rates. The share of asset impairment and credit impairment losses decreased by 0.37 pct year on year; the share of other income increased by 0.54 PCT to 0.55% year on year, mainly due to the current government subsidy of 10.43 million yuan included in other income (23H1 included in non-operating income); the share of non-operating income decreased by 0.59 PCT year on year; and the share of income tax decreased by 0.28 PCT to 2.17%. (2) The 24Q2 gross profit margin was 68.44%, the same year on year, but the net profit margin was 3.42%, down 0.90PCT; the sales/management/R&D/finance expense ratio increased by 1.19/0.93/0.64/-1.08PCT; the share of other income increased by 1.17 PCT; the share of non-operating income decreased by 1.45 PCT; and the income tax share decreased by 1.21 PCT.

Accounts receivable and inventory improved simultaneously. 24H inventory was $0.837 billion, down 9% year on year; inventory turnover days were 249 days, down 34 days year on year; accounts receivable were 0.306 billion yuan, down 5.88% year on year; accounts receivable turnover was 31 days, up 3 days year on year; accounts payable was 0.322 billion yuan, up 1.26% year on year, and accounts payable turnover was 108 days, down 19 days year on year.

Investment advice

We analyzed (1) The slump in short-term terminal sales did not change the TW improvement trend. Since '21, TW has improved its brand power by pioneering the Douyin channel. We analyzed that the TW brand has high gross margin, the team is good at transforming from public domain traffic to private traffic, and the core is to be able to grasp the needs of young people and clear the industry. (2) The company's long-term debt was repaid 0.15 billion yuan in the first half of the year, and the remaining interest rate was lowered from 3.80%/3.65% to 3.65%/3.10%, which is expected to bring flexible profit margin; (3) Yunjin is expected to continue to benefit from the new Chinese trend in the second half of the year, leading to increased profits. (4) In the long run, there is still plenty of room for improvement in the company's store efficiency and net interest rate. The general consumption environment for the first half of the year fell short of expectations, and the 24/25/26 revenue forecast was lowered by 5.313/6.041/6.805 billion yuan to 4.64/5.09/5.7 billion yuan; the 24/25/26 net profit forecast was lowered by 0.412/0.482/0.555 billion yuan to 0.342/0.404/0.466 billion yuan; corresponding to the reduction of the 24/25/26 EPS forecast by 1.19/1.39/1.60 yuan to 0.99/1.17/1.34 yuan, with a closing price of 6.97 yuan on August 16, 2024, corresponding to 24/25/26 PE was 7/6/5X respectively, maintaining a “buy” rating.

Risk warning

The risk of online sales falling short of expectations, the risk of high cost rates, and systemic risks.