1H24 results are in line with our expectations

The company announced 1H24 results, with revenue of 4.18 billion yuan, an increase of 50.6%, and net profit to mother of 0.24 billion yuan, an increase of 56.7%. The results are in line with our expectations. On a quarterly basis, 1Q/2Q24 revenue increased 44.7%/55.5%, respectively, and net profit to mother increased 65.6%/52%, respectively. The company issued a semi-annual profit distribution plan and distributed a cash dividend of 3.0 yuan (tax included) for every 10 shares to all shareholders, with a dividend rate of 50.9%.

Development trends

1. The revenue of leading apparel brands continues to grow rapidly, and non-apparel categories are being streamlined and driven by R&D to accelerate growth. 1) Apparel business: Q1/Q2 revenue reached 1.31/1.69 billion yuan, respectively, and the company continued to increase its brand matrix. Headwear brands Coofandy, Ekouaer, and Avidlove 1H24's revenue increased by 51.1%/57.9%/34.7% respectively, and mid-waist brand incubation efforts continued to increase. Women's clothing brand Zeagoo has grown into the fourth largest clothing brand, with 1H24 revenue up 81.9%; 2) Non-apparel: Q1/Q2 revenue reached 0.43/0.59 billion yuan respectively, an increase of 26.5%/40.9%. The company accelerated category streamlining and business focus to enhance category competitiveness through product-level R&D investment. The outdoor canopy brand COBOZI 1H24 also increased 96.7% in revenue and grew to become the company's fifth largest brand.

2. Increased efficiency in non-apparel operations led to an improvement in gross margin, and focus on Amazon apparel commissions continuing to bring flexibility in performance. On the gross profit side, the company's 1H24 gross margin also increased by 1.1 ppt to 46.5%. Among them, the gross margin of apparel and non-apparel was 49.3%/42.1%, respectively, -0.9pp/+8.1ppt. With the end of inventory adjustments and category focus development, the gross margin of the non-apparel business grew rapidly. On the cost side, the 1H24 sales/management+R&D/finance expense ratio was +1.2ppt/-0.2ppt, respectively. The increase in sales expenses was mainly due to the company increasing brand promotion and increasing the influence and market share of leading brands. Under the combined influence, the company's 1H24 net profit margin was 5.6%, an increase of 0.2ppt. Looking ahead, since this year, Amazon has successively lowered the commission rate for low-cost apparel on sites such as the US, Europe, and Canada. We believe that platform commissions are a more rigid component of cross-border e-commerce fees. The platform reduces commissions or directly increases the gross profit margin of some of the company's products, bringing performance flexibility.

3. Optimistic about the company's core competitive advantage as a B2C cross-border e-commerce leader, it is expected to continue to rise rapidly under the construction of a clothing brand matrix and non-apparel focus development. We believe that 1) apparel business: the company has built a full-link digital system around product development, flexible supply chain, marketing and promotion, etc., and has built a positive flywheel effect of “high quality products - user praise - platform traffic inclination”. As the underlying capabilities of the apparel category are settled and reused on a large scale, the company is expected to build a rapid growth in the middle and lower tier brands while expanding the leading advantages of leading brands, and enter potential incremental markets with platform expansion and regional expansion to support the continuous and rapid growth of the apparel business in the medium to long term; 2) Non-apparel business: focus on category product strategy and strategy With a level of R&D investment, the company is not a clothing product Competitiveness and brand premiums are expected to continue to be prominent, and quality growth will be achieved.

Profit forecasting and valuation

Keeping the profit forecast unchanged, the current stock price corresponds to 19/15 times P/E for 2024/25. Maintaining an outperforming industry rating, the target price was lowered by 21% to 30 yuan based on market risk appetite adjustments, corresponding to 27/21 times P/E in 2024/25, with 42% upside.

risks

Competition has intensified; trade frictions and platform management have become stricter; channel concentration is high; brand building falls short of expectations.