Incident Overview

In the first three quarters of 24 years, the company's revenue/net profit after deducting non-attributable net profit/net operating cash flow were 11.07/0.102/0.091/-0.125 billion yuan, up 19.04%/120.78%/159.51%/-30.04 billion yuan over the previous year. In 24Q3, the company's revenue/net profit attributable to mother was 0.399/0.016/0.01 billion yuan, up 6.48%/-33.63%/-55.47% year over year; based on the financial expense spin-off, we analyzed that the decline in net profit was mainly due to exchange losses (chip subsidiary G2 TOUCH) affecting 13 million yuan, excluding this impact on net profit/net profit growth of 21%/5% year-on-year.

Analytical judgment:

Q3 Revenue continues to grow. According to our analysis, the revenue growth mainly comes from: 1) the company's main outdoor business is booming, and we expect double-digit growth in the main business; 2) double-digit growth in the chip G2TOUCH business, which is affected by the time difference (the company acquired 72.79%/22.22% of G2Touch shares in May 31 and October 2023, respectively, with a shareholding ratio of 95% at the end of the year).

The increase in gross margin but the decline in net interest to mother was mainly due to an increase in sales expenses ratio and financial expense ratio (exchange loss), and an increase in minority shareholders' share of losses. 2024Q3 gross margin was 44.7%, up 2.2 PCT year on year, net profit margin was 4.1%, down 2.5 PCT year on year. In terms of expense ratios, 2024Q3 sales/management/R&D/finance expense ratios were 24.0%/10.0%/5.6%/3.1%, up 3.0/-1.0/0.1/5.2PCT year on year; other benefits/revenue increased by 1.1 PCT; increase in share of investment income/revenue by 0.2 PCT; increase in fair value change by 0.2 PCT; increase in non-operating revenue/share ratio by 0.1 PCT; income tax/revenue increased 0.8 PCT year on year; loss/income of minority shareholders increased 1.9 PCT year on year.

Inventories have increased, and the number of inventory turnover days has decreased. At the end of 2024Q3, the company's inventory was 0.5 billion yuan, up 21.7% year on year, up 46.7% year on month, inventory turnover was 199 days, down 18 days year on year; accounts receivable were 0.354 billion yuan, down 13.1% year on year; accounts receivable turnover was 73 days, down 40 days year on year; accounts payable was 0.292 billion yuan, up 13.9% year on year; accounts payable turnover was 128 days, down 15 days year on year.

Investment advice

According to our analysis, (1) the main line of cross-border mergers and acquisitions has been heating up recently, and the company's “outdoor+chip dual main business strategy” has been in operation for many years; (2) since the second half of '23, the outdoor industry has developed rapidly, succeeding previous sports trends and becoming the next growth point for the apparel segment. The company's main business is growing well, and is making efforts to improve product functionality, increase marketing investment, and improve store efficiency. In the future, it is expected that improved terminal discount rates will lead to brand reshaping and improved profitability. (2) Looking at the chip business, G2 Touch's merger and acquisition was quite successful, mainly benefiting from technology development and downstream customer development. Maintain the profit forecast, maintain the 24-26 revenue forecast of 1.746/2.011/2.28 billion yuan; maintain the 24-26 net profit forecast of 1.80/2.37/ 0.276 billion yuan; corresponding to 24-26EPS of 0.20/0.27/0.31 billion yuan. The closing price of 8.89 yuan on October 29, 2024 corresponds to PE 44/33/28X in 24/25/26, respectively, maintaining a “buy” rating.

Risk warning

The progress of opening the store fell short of expectations, and the performance of the target of the acquisition was uncertain. Beijing Chip's failure to meet its performance promises calculated the risk of impairment of goodwill, a systemic risk.