Incidents:

The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 5.728 billion yuan, a net profit of 0.278 billion yuan, a net profit of 0.278 billion yuan, a net profit of 0.258 billion yuan or -17.44% year-on-year; net cash flow from operating activities of 1.496 billion yuan, +40.41% year on year; basic earnings per share of 0.69 yuan, -9.21% year on year; weighted average return on net assets of 8.75%, YoY- 3.97pct

Among them: Q3 achieved operating income of 2.007 billion yuan, +34.49% YoY, realized net profit of 0.106 billion yuan, +5.44% YoY, and realized net profit of 0.099 billion yuan without return to mother, or -1.46% YoY.

Key points of investment:

The company's revenue has maintained a relatively rapid growth rate, and the decline in profit has narrowed.

In the first three quarters of 2024, the company's revenue continued to grow at a relatively rapid rate, up 38.49% year-on-year, mainly due to the company's increased marketing efforts, a further increase in the share of new and sub-new product sales, the smooth expansion of the emerging channel TEMU, and the expansion of sales scale. Net profit to mother for the first three quarters was 0.278 billion yuan, -3.11% year over year, 4.62 pct narrower than the 2024 mid-year report's net profit growth rate of -7.73%; looking at Q3 net profit of 0.106 billion yuan, +5.44% year over year, and +49.30% month over month; the company's performance improved, mainly due to the company actively raising the sales prices of some products to hedge the impact of rising sea freight charges and reduced exchange earnings on the company's profits.

Product prices were raised to improve gross margin levels, and pressure on shipping costs remained in the fourth quarter.

The company's gross margin for the first three quarters of 2024 was 35.10%, -1.76pct year on year, but 0.18pct higher than the interim report; of these, Q3 gross profit margin was 35.44%, -2.25pct year on year, +1.58pct month-on-month, and gross margin improved. The decline in gross margin compared to last year was mainly due to the impact of the Red Sea incident. According to Flush data, the China Export Container Freight Index (CCFI) showed a fluctuating upward trend in the first three quarters of 2024. The average value was 1584.76, +64.44% compared to the same period last year. At the beginning of 2024, CCFI was 936.83. In late July, it rose to a high of 2180.69, an increase of 132.77%, then began to decline. As of October 25, 2024, CCFI fell back to 1366.40. The improvement in the company's 24Q3 gross margin was mainly due to the company actively raising product prices to hedge against the impact of sea freight charges. Although shipping costs have declined recently, due to the company's adoption of the long-term coordination model, the company's 24Q4 shipping rates are expected to remain at a phased high point during the year, which will continue to suppress the company's gross margin; looking ahead to 2025, shipping costs are expected to decline, and the cost aspect will improve, thus driving the company's gross margin repair.

Net interest rates declined due to increased sales expenses and reduced exchange earnings, and marketing effects need to be further unleashed.

The company's net interest rate for the first three quarters of 2024 was 4.85%, -2.08pct year on year, but up 0.24pct from the interim report; of these, Q3 net interest rate was 5.28%, -1.46pct year on year, and +1.50pct month-on-month, and the net interest rate improved. In terms of period expenses, the company's expenses rate for the first three quarters was 29.76%, +2.05pct year on year. Among them, sales, management, R&D, and finance expenses were 24.67%, 3.63%, 0.94%, and 0.52%, respectively, +1.77, -0.25, and +0.78 pct, respectively. The increase in sales expenses is mainly due to an increase in platform transaction fees due to an increase in the scale of platform sales and increased investment in marketing activities; the increase in financial expenses is mainly due to a decrease in exchange income and a decrease in interest income due to fluctuations in foreign exchange rates. The company continues to strengthen its marketing efforts, and the company's sales scale has expanded accordingly. The marketing results have gradually been shown. In the future, marketing expenses will be further controlled in line with the sales conversion rate.

Respond positively to multiple dividends in a year, and plans to return dividends to shareholders in the third quarter.

The company has responded positively to dividends more than one year. On the premise of complying with the principles of profit distribution and ensuring the normal operation and long-term development of the company, the company announced a profit distribution plan for the first three quarters of 2024. It plans to distribute a cash dividend of 1 yuan (tax included) to all shareholders for every 10 shares, for a total cash dividend of RMB 40.15 million (tax included), with a dividend payment rate of 14.47%. The company's dividend for the first three quarters shows the importance it attaches to shareholder returns, and also reflects the company's confidence in future profit prospects.

Maintain the company's “buy” rating.

The company will continue to increase its new product launch efforts to support future revenue growth; actively expand emerging platforms and offline markets on the basis of existing advantageous channels; strengthen cost control and improve costs and profit margins; steadily promote overseas local compliance capabilities and the migration of the Southeast Asian supply chain, and the scale advantage continues to increase; currently, the company has sufficient stocks to prepare for the peak sales season in Q4, and expects the company to achieve further growth during the peak overseas sales season.

Maintain the company's “buy” rating. The company is expected to achieve net profit of 0.409 billion yuan, 0.542 billion yuan, and 0.726 billion yuan in 2024, 2025, and 2026, respectively. The corresponding EPS is 1.02 yuan, 1.35 yuan, and 1.81 yuan, respectively, and the corresponding PE is 18.92 times, 14.28 times, and 10.67 times, respectively.

Risk warning: risk of geopolitical and trade friction; risk of large fluctuations in shipping rates and exchange rates; risk of foreign demand falling short of expectations; risk of increased industry competition.