Description of the event
2024H1 achieved revenue of about 7.759 billion yuan, an increase of 25% year on year; net profit to mother was about 1.17 billion yuan, up 16.45% year on year; adjusted net profit was 1.24 billion yuan, up 17.8% year on year; and plans to distribute an interim cash dividend of approximately RMB 0.62 billion.
The Board of Directors approved the 2024 share repurchase plan to buy back up to HK$2 billion worth of common shares of the company or American depository shares representing its common shares in the open market within a 12-month period.
Incident comments
All business segments met expectations for the second quarter, and adjusted net profit margins remained stable regardless of exchange gains and losses. With 2024Q2, the company achieved revenue of 4.04 billion yuan, an increase of 24.1% year-on-year. Separately, mainland China achieved revenue of 2.53 billion yuan, up 18.1% year on year. Among them, Mingchuang Premium increased 17.4% year on year, TOP TOY increased 24.3% year on year; overseas market revenue increased 35.5% year on year to 1.51 billion. 2024Q2's gross margin increased 4.1 percentage points to 43.9% year-on-year, mainly due to the increase in the share of the company's direct business and the continued implementation of the IP strategy and brand upgrade strategy. The sales expense ratio increased by 5.7 percentage points, mainly due to a sharp increase in the corresponding expenses of direct-run stores in the first half of the year, and the management expenses ratio increased slightly by 0.6 percentage points. Net profit for the current period was 0.591 billion yuan, up 8.1% year on year, and adjusted net profit of 0.625 billion yuan, up 9.4% year on year. If the effects of exchange profit and loss for the same period of the year and this year were excluded from the adjusted net profit, the year-on-year increase was 24.6%, showing that the growth rate of operating profit and revenue growth in the second quarter was roughly in sync, and profitability remained stable.
Domestic TOPTOY and overseas directly-managed exhibition stores surged significantly in the first half of the year. Store side: 2024H1 opened a total of 455 new stores per year, including: 189 Mingchuang Premium stores in mainland China, 266 overseas markets (105 direct operators, 161 agents), and 47 TOP TOY stores. Revenue side: 2024H1's overall revenue was 7.76 billion, up 25% year over year, the average number of stores increased 18.8%, and same-store sales increased 7%. Among them: Mainland China's revenue was 5.03 billion yuan, up 17.2% year on year. Among them, Mingchuang Premium increased 16.5% year on year (average number of stores increased 16%, same-store sales changed -1.7%), TOP TOY increased 37.9% year on year (average number of stores increased, same store sales increased 13.6%), overseas revenue was 2.73 billion yuan, up 42.6% year on year, average number of stores increased 21.8%, and same-store sales increased 16.3%.
Investment advice: We believe that the company continues to implement the long-term strategy of “adhering to cost performance, globalization, and product innovation and IP design”. In this context, the current investment highlights are: 1) the domestic market focuses on multi-store testing and exploration, which is expected to cover more consumer scenarios and groups; 2) the overseas business is in the stage of cryptographic expansion; 3) the continuous improvement of product development capabilities is reflected in the continuous increase in Mingchuang Premium's IP share and the continuous breakthroughs of TOP TOY's self-developed products. The estimated net profit for 2024-2025 is RMB 26, 3.2 billion and 4 billion yuan, respectively, and adjusted net profit is RMB 28, 3.4 billion, and 4.1 billion yuan, respectively, maintaining a “buy” rating.
Risk warning
1. The brand upgrade and transformation effect falls short of expectations;
2. Increased industry competition;
3. Store expansion fell short of expectations.