The company announced its 2024 mid-year report: 24H1 revenue of 5.96 billion yuan/yoy +7.1%, net profit of 0.55 billion yuan/yoy +7.1%, net profit of non-return to mother 0.54 billion yuan/yoy +12.7%. On a quarterly basis, 24Q1/Q2 revenue was +4.6%/+10.1%, respectively, and net profit to mother was +11.4%/+0.7%, respectively. In Q2, revenue growth accelerated and net profit maintained year-on-year growth in an environment of weakening domestic consumption, leading the industry.

Casual clothing stores resumed net opening, new store types were added, and children's clothing was promoted to promote store renovation. 1) By product, 24H1 casual/children's clothing revenue was 1.81/4.07 billion yuan respectively, +7.7%/+6.4% year over year, accounting for 30%/68% respectively. As of 24H1, there were 2755/ 5385 casual/children's clothing stores respectively, compared to +61/-57 at the end of 23H1. As the company continued to improve its digital capabilities and omni-channel operation efficiency, casual wear reversed the trend of closing stores for many years and resumed net store opening. In '24, the company began promoting the “New Semma” model, covering adult clothing, children's, footwear and underwear accessories categories. By the end of 24H1, the new Semma stores had opened more than 200. There are more than 200 children's clothing 24H1 refurbished stores, which are expected to reach 500 throughout the year, and the proportion of the latest image stores will increase to more than 75%. 2) By channel, 24H1 online/direct/franchise/joint venture revenue was +3.4%/+5.0%/+11.8%/+0.3%, accounting for 46%/12%/41%/1%, respectively. As of the end of 24H1, the number of direct-operated/franchised/joint stores was 839/7185/116, respectively, compared to +140/- 186/+50 at the end of 23H1. Franchisees led revenue growth faster than other channels; continued to push forward “global integration” reforms and increase the same price ratio online and offline. Online growth was slightly slower than offline.

Net interest rates have remained stable, and inventory turnover has been further optimized. 1) Gross profit margin: 24H1 gross margin +1.48pct to 46.11%, of which online/direct/franchise/joint venture gross margin was +5.7/-3.22/ -1.45/ -0.47pct to 47.38%/67.17%/38.09%/62.19%, respectively. Online gross margin increased a lot, mainly due to online product structure optimization and discount increases under global integration reform measures. 2) The cost rate for the period: 24H1 +0.01pct year over year to 30.63%, which is basically the same. 3) Net interest rate due to mother:

Combined with a year-on-year decrease of 13.37 million yuan in government subsidies, an increase in credit impairment losses, and an increase in income tax, the 24H1 net profit margin to mother remained flat at 9.28% year on year. 4) Inventory: Inventory at the end of 24H1 was 2.85 billion yuan/yoy -10%. The number of inventory turnover days was -48 days to 157 days year on year, and the inventory turnover was further optimized.

5) Cash flow: 24H1 net cash flow from operating activities - $5.43 million, mainly due to an increase in advance payments for autumn and winter clothing purchases, up to $6.3 billion in monetary capital as of 24H1.

Profit forecast and investment rating: The company is a leading domestic children's wear+casual wear company. 24H1's performance has maintained steady growth in an environment where domestic consumption is weak, profit margins have remained stable, and inventory turnover has been further optimized. We believe it fully reflects the transformation results of the company's retail organizational transformation with digitalization as the core and the entire business chain empowered by the entire business chain over the past few years. Considering the current weak domestic consumer confidence, we adjusted the 24-25 net profit of 1.39/1.59 billion yuan to 1.24/1.37 billion yuan, increasing the 26-year forecast value of 1.51 billion yuan, corresponding to PE10/9/8X in 24-26, maintaining the “buy” rating.

Risk warning: Consumption and economy are weak, and competition is intensifying.