2Q24 results are in line with our expectations
The company announced 2Q24 results: revenue increased 24% to 4 billion yuan, and non-IFRS net profit increased 9% to 0.63 billion yuan. The results were in line with our expectations. The company declared an interim dividend of $0.0686 per share, corresponding to a payout ratio of approximately 50% (adjusted net profit). Furthermore, the company plans to repurchase no more than HK$2 billion tradable shares or ADs within the next 12 months.
Domestic 2Q24 Mingchuang Premium stores grew steadily month-on-month; TOPTOY developed rapidly. Revenue from Mingchuang Premium's domestic business in 2Q24 also increased 18% to 2.3 billion yuan. Among them, offline revenue also increased 17% to 2.1 billion yuan. Net domestic sales of 81 stores reached 4,115 during the quarter, and domestic same-store growth was stable month-on-month (1H24 same-store recovered to 98.3% of 1H23, with same-store recovery in high-tier cities better than lower-tier cities).
TOPTOY's revenue also increased 24% to 0.2 billion yuan, and the net increase of 35 stores during the quarter accelerated markedly from month to month.
Overseas direct stores opened quickly, and the US market accelerated its layout. Overseas business revenue also increased 35% to 1.5 billion yuan in 2Q24, and the number of stores reached 2,753. Among them, agency market revenue also increased 15% to 0.7 billion yuan, with a net increase of 53 stores in a single quarter; revenue from the direct sales market increased 60% to 0.8 billion yuan in 2Q24, accounting for 54% of total overseas revenue, with a net number of stores opening 104 month-on-month; the US market performed well. As of the end of June, the number of stores doubled year on year, and 1H24 same-store sales achieved double-digit growth. At the same time, the company actively laid out overseas supply chains and developed local supply chains in Southeast Asia, Japan, South Korea and the US to deal with tariff risks.
Gross margin reached a record high, and changes in exchange gains and losses affected net profit. The 2Q24 company's gross profit margin reached a record high of 43.9%. The increase in IP share led to an improvement in the gross margin of all business lines. At the same time, the increase in the share of overseas direct management and TOPTOY brought about structural changes. Due to the acceleration of overseas direct sales market opening related rent, depreciation, and labor costs, the 2Q24 sales management expense ratio increased 6.3ppt year-on-year. In terms of other non-operating income, exchange losses of 4.2 million yuan in a single quarter were compared to exchange earnings of 66.1 million yuan in the same period last year. As a result of year-on-year changes, the 2Q24 non-IFRS net profit growth rate was only 9%. Excluding the impact of exchange, non-IFRS net profit increased 25% year on year.
Development trends
The company maintained a 20-30% year-on-year increase in revenue for the year, and the non-IFRS net profit guideline of not less than 2.8 billion yuan. We believe that in the next 4 quarters, the company will usher in a peak overseas business season and a low domestic business base, and revenue growth is expected to accelerate month-on-month.
Profit forecasting and valuation
Keep the company's 2024/25 EPS forecast of $2.15/2.59 unchanged. Currently, Hong Kong stocks correspond to 14/11 times 2024/25 non-IFRS P/E, and US stocks are 13/10 times, maintaining that Hong Kong stocks and US stocks outperform the industry ratings, but considering that the unfavorable retail environment is dragging down the valuation, the target price of Hong Kong/US stocks was lowered by 18% to HK$40.86 /$21.09, corresponding to 17/13 times the 2024/25 increase in non-IFRS P/E and Hong Kong equities/US stocks space.
risks
The retail environment fell short of expectations, store openings fell short of expectations, new business development fell short of expectations, and international trade fluctuated.