1-3Q24 performance falls short of our expectations

The company announced 1-3Q24 results. Revenue reached 6.8 billion yuan, an increase of 55.5%, and net profit to mother reached 0.195 billion yuan, a decrease of 12.2%. The performance was lower than our expectations, mainly due to rising procurement and contract execution costs, centralized release of new products, and increased marketing and promotion efforts. On a quarterly basis, Q1/Q2/Q3 revenue increased 44.7%/55.5%/63.9%, while net profit to mother increased +65.6%/+52%/loss year-on-year, respectively.

Development trends

1. Q3 Multi-brand efforts drive the accelerated growth of apparel, and new product development and channel expansion drive the growth of non-apparel for the better. We believe that 1) apparel business: the company's Q3 revenue reached 1.86 billion yuan, an increase of 65%. The company accelerated leading brand building and share growth through new product development and marketing enhancement. Sales of brands such as Coofandy, Ekouaer, and Avidlove are expected to maintain rapid growth, and benefit from the accumulation of underlying capacity in the apparel category and high reuse between categories. Emerging brands are also incubating at an accelerated pace. Women's clothing brands Zeagoo and Hotouch, and children's clothing brand Arshiner are expected to grow rapidly; 2) Non-apparel business:

Q3 revenue reached 0.62 billion yuan, an increase of 43.4%. Under the category-focused strategy, the company increased its new product development, marketing and promotion efforts, and supported the growth of the non-apparel business through channel expansion.

2. Rising procurement and contract fulfillment costs dragged down Q3 gross profit margins, and net interest rates were under pressure in the short term due to centralized promotion of new products and increased marketing efforts. The company's Q3 gross margin reached 42.4%, down 3.6 ppt, mainly due to increased procurement costs and rising performance costs; on the cost side, the Q3 sales expenses rate increased by 4.4ppt. We expect platform commissions to decline as Amazon's commission reduction policy progresses, but the company increased product development in Q3 to meet the peak e-commerce consumption season. Early cultivation and promotion costs for new products were high, and increased the promotion of old products to consolidate the dominant position of the category. Increased competition among Amazon sellers also increased advertising expenses within the website. Q3 management/development/finance were up -0.6 ppts/, respectively It remained flat at 0.2 ppt/. The increase in management expenses was mainly due to equity incentive expenses, which anticipated team expansion; under comprehensive influence, the company's Q3 net loss was 40.18 million yuan, putting short-term pressure on operations.

3. Be optimistic about the company's comprehensive competitive advantage as a B2C cross-border e-commerce leader, and focus on future profitability improvement trends under new product growth and brand building. We believe that 1) in the short term, as the peak overseas e-commerce sales season of Q4 approaches, the company's new products are expected to benefit from early marketing cultivation to accelerate growth and drive improved profitability; 2) in the medium to long term, the company's apparel business is expected to achieve continuous growth by relying on brand matrix cultivation, platform expansion, regional expansion, etc., and subsequent successful construction of the overseas supply chain is expected to support operational efficiency. The non-apparel business is expected to focus on categories and achieve high-quality growth along with R&D innovation to help the company continue to rise in the medium to long term.

Profit forecasting and valuation

Considering the company's short-term increase in market expenses, the 24/25 net profit forecast was lowered by 22%/16% to 0.35/0.49 billion yuan. The current stock price corresponds to 23 times P/E in 2025. Based on the continued boom in the cross-border e-commerce industry and the trend of improving corporate profits, the outperforming industry rating and target price of 30 yuan remained unchanged, corresponding to 25 times P/E in 2025, with 8% room for growth.

risks

Competition has intensified; trade frictions and platform management have become stricter; channel concentration is high; brand building falls short of expectations.