Incidents:

Mingchuang Premium (09896.HK) announced financial results for 2024H1 and 2024Q2 on August 30, 2024. 2024Q2's total revenue was 4.04 billion yuan, +24.1% YoY, and gross margin was 43.9%, a record high. Compared with the same period of the previous year, +4.1pct, adjusted net profit was 0.625 billion yuan, +9.4% YoY. After excluding exchange gains and losses, adjusted net profit was +24.6% YoY. 2024H1's total revenue was 7.76 billion yuan, +25.0% year on year, gross margin was 43.7%, +4.1pct compared to the same period last year, adjusted net profit was 1.24 billion yuan, +17.8% year on year, and +25.5% year over year after excluding exchange gains and losses. The company announced that it will pay an interim dividend of $0.0686 per share for the six months ending June 30, 2024 on September 23, 2024.

Investment highlights:

Q2 Overseas business revenue growth was impressive, and the increase in the number of H1 stores led to an increase in revenue.

2024Q2's total revenue was 4.04 billion yuan, +24.1% YoY. In terms of revenue split, 1) Mainland China's revenue was 2.53 billion yuan, +18.1% year over year. Among them, China's Mingchuang Premium brand revenue was 2.31 billion yuan, +18.3% year over year, mainly from Mingchuang Premium China offline store revenue +17.4%, TOPTOY brand revenue was 0.21 billion yuan, +24.3% year over year; 2) Overseas business revenue in 2024Q2 was 1.51 billion yuan, +35.5% year over year, a quarterly high.

2024H1's total revenue was 7.76 billion yuan, +25.0% year over year. Revenue growth was mainly due to comparable same-store sales +7%, and average number of stores +19% year over year.

Q2 Gross profit margin reached a record high, and the expansion of overseas directly-managed stores led to a significant increase in costs. The gross margin of the 2024Q2 company was 43.9%, compared with +4.1pct in the same period of the previous year, adjusted net profit of 0.625 billion yuan, +9.4% year on year. The adjusted net profit of 2024Q2 included exchange losses of 0.0042 billion yuan, and exchange earnings for the same period of the previous year were 0.0661 billion yuan. Therefore, after excluding exchange gains and losses, the adjusted net profit margin was +24.6%, compared to 15.5% for the same period last year. On the cost side, 2024Q2 sales and distribution expenses were 0.83 billion yuan, +72.5% year over year, mainly due to the increase in expenses due to the expansion of direct-run stores, especially in the US market. As of 2024Q2, the total number of the company's overseas direct-managed stores was 343, nearly double the number in the same period last year. General administrative expenses were $0.23 billion, +38.1% year over year, mainly due to increased personnel expenses related to the company's business growth.

The number of overseas directly-managed stores was +95% year-on-year, maintaining the year-round guideline. As of the end of 2024Q2, the number of the company's Mingchuang Premium stores was 6,868, +455 compared to the beginning of the year. Among them, the number of stores in mainland China was 4,115, +189, and the number of overseas famous premium stores was 2,753, +266 compared to the beginning of the year. Among them, the number of overseas directly managed stores was 343, +105 compared to the beginning of the year, and +167 compared to the same period last year. TOPTOY has 195 stores, +47 at the beginning of the year. Judging from store performance, the 2024H1 domestic Mingchuang Premium same-store sales recovery rate was 98.3% of last year's level, and the revenue of 2024Q2's directly-managed stores was +109.3% year-on-year. The company's guidance for the full year of 2024 remains unchanged. Revenue is expected to be +20% to 30% year over year, and the adjusted net profit target is not less than 2.8 billion yuan.

Profit forecast and investment rating: The company's domestic and overseas channels continue to expand, and overseas direct stores are performing well. In the future, with the expansion of domestic stores and overseas direct sales, the performance is expected to continue to maintain high growth. Considering the increase in the company's overseas direct market expansion rate, we adjusted the profit forecast. The company's FY2024-FY2026 revenue is 15.4/19.1/22.9 billion yuan, +24%/+20%; net profit to mother 2.4/3.15/3.82 billion yuan, YoY +36%/+31%/+22%; closing price of HK$32.90 on August 30, 2024, corresponding to FY2024-FY2026 PE valuation of 16/12/10X. Currently, the company's overseas layout is accelerating. It is recommended to pay attention to the performance during the 2024Q4 overseas peak season and maintain a “buy” rating.

Risk warning: macro-environmental risk; industry competition risk; consumer preference risk; supply chain risk; risk of market development falling short of expectations.