Incident Overview

Net profit/net profit attributable to mothers/ net profit after deduction of operating cash flow was 8.45/0.014/0.002/0.014 billion yuan, a year-on-year decrease of 14.21%/70.56%/94.15%/86.15%. The sharp decline in net profit was mainly due to negative operating leverage, that is, a decrease in sales expenses, but the decline in revenue was even greater.

Non-recurring profit and loss for 24Q3/23Q3 was 0.012/0.016 billion yuan respectively, mainly government subsidies of 0.016/0.02 billion yuan.

In the first three quarters of 2024, the company achieved revenue/net profit attributable to mothers/net profit deducted from mother and operating cash flow of 29.23/0.162/0.142/0.374 billion yuan, respectively, a year-on-year decrease of 5.61%/15.16%/14.07%/21.56%. Operating cash flow was higher than net profit. Our analysis mainly came from a decrease in inventory.

Analytical judgment:

The double-digit decline in TW was mainly dragged down by offline. New franchises were mainly direct management to franchises, and Yunjin continued to grow. (1) By brand, 24Q3TW/VG/Yunjin's revenue was 0.649/0.168/0.017 billion yuan, up -11.7%/-27.7%/20.7% year-on-year, and -17.69%/-3.8%/75.66% year-on-year in the first three quarters. (2) Online/offline revenue in 24Q3 was 0.309/0.525 billion yuan, down 5.8%/19.2% year-on-year, and the growth rate in the first three quarters was -2.0%/-7.9%. (3) Looking at offline endogenesis and extension, as of 24Q3TW, the number of direct-operated/franchised stores was 756/304, up -15.4%/32.8% year-on-year. From this, it is estimated that Q3 net sales in a single quarter were -59/44, and the number of direct-management/franchisees increased by -104/66 respectively from the beginning of the year to date, including 53 direct-managed franchisees. The monthly sales revenue of TW's old stores was 0.1465 million yuan, down 2.8% year on year. As of 24Q3VG, the number of direct-operated/franchised stores was 135/54, up -1.5%/-11.5% year on year. From this, it is estimated that Q3 had a net sales of 5/0. The monthly revenue of old VG stores was 0.3357 million yuan, down 9.5% year on year. (4) Looking at the unit price, the average price of VG/TW tags in the first three quarters of 24 was 3356/745 yuan respectively, up 2.2%/-0.1% year on year.

Online gross margin increased and offline gross margin declined in 24Q3. The net margin decline was higher than gross margin mainly due to increased sales expenses. (1) By brand, 24Q3 TW/VG/Yunjin's gross margin was 73.5%/67.4%/74.8%, down 3.2/0.5/0.5PCT; by channel, online/offline gross margin was 64.8%/71.1%, respectively; up 1.4/-2.2PCT year on year, respectively; (2) 2024Q3's gross margin/net profit margin to mother was 68.9%/1.6%, down 0.8/3.1 PCT year on year. The 24Q3 sales/management/R&D/finance expense rates were 55.9%/5.5%/3.8%/1.5%, respectively, up 2.0/0.3/0.8/-0.6PCT; the share of other income/revenue increased by 1.9 PCT; asset and credit impairment loss/revenue decreased by 0.9 PCT; asset disposal revenue/revenue decreased by 0.2 PCT; non-operating income/revenue decreased by 2.0PCT; income tax/revenue decreased by 1.1 PCT year on year.

Inventories remained flat year over year and increased month-on-month. At the end of the 24Q3 period, the company's inventory was 1.067 billion yuan, down 0.1% year on year and 27.4% month on month; inventory turnover days were 299 days, down 14 days year on year; accounts receivable were 0.311 billion yuan, down 8.6% year on year; accounts receivable turnover was 34 days, up 4 days year on year; accounts payable was 0.538 billion yuan, up 24.2% year on year; accounts payable turnover was 147 days, down 1 day year on year.

Investment advice

According to our analysis, due to the relatively high share of direct management, Jinhong Group's negative operating leverage effect was significant in the context of the downturn. Looking forward to the future, (1) TW continues to join and expand categories, and we look forward to the resumption of online growth in the future. (2) Yunjin is expected to continue to benefit from the new Chinese trend and increase profits. (3) In the long run, there is still plenty of room for improvement in the company's store efficiency and net interest rate. Considering that Q3 fell short of expectations, the 24/25/26 revenue forecast was lowered by 4.64/5.09/5.7 billion yuan to 4.227/4.546/5.005 billion yuan; the 24/25/26 net profit forecast was lowered by 0.342/0.404/0.466 billion yuan to 0.274/0.32/0.377 billion yuan; corresponding to a reduction in the 24/25/26 EPS forecast of 0.99/1.17/1.34 yuan to 0.79/ 0.92/1.09 yuan, with a closing price of 7.68 yuan on October 30, 2024, corresponding to the 24/25/26 PE was 10/8/7X respectively, maintaining a “buy” rating.

Risk warning

The risk of online sales falling short of expectations, the risk of high cost rates, and systemic risks.