Key points of investment

Taobo revealed its FY25 semi-annual report, and revenue was under pressure as scheduled:

Affected by changes in the consumer environment, the company's total retail and wholesale sales volume declined in the 2024/3/1-5/31 and 6/1-8/30 quarters, respectively. As a result, the company's revenue for the first half of the fiscal year fell 7.9% year on year to 13.06 billion yuan, of which sales revenue was 12.96 billion billion yuan, -7.9% year on year, and joint revenue and e-sports revenue also fell 15.7% and 0.5% year on year, respectively.

Direct management continues to improve the store experience, and the performance of new brands is slightly better than the main brands:

Looking closely at sales revenue, direct sales revenue in the first half of the fiscal year fell 8.9% to 10.93 billion, and wholesale revenue fell 2.2% to 2.04 billion. Among them, the net decrease of 331 direct-run channel stores from the beginning of the fiscal year reached 5813, the total sales area of stores was -1.9%, but the sales area of a single store was +4.8% year-on-year, continuing to drive small sales and enhance offline experience; by brand, revenue from sales of major brands fell 8.1% to 11.35 billion yuan year on year, and revenue from sales of products from other brands declined year on year 6.5% to 1.61 billion yuan. Cooperation among other brands with leading sports segments such as HOKA and Glorstone is worth looking forward to

The decline in absolute gross profit puts pressure on performance:

At the same time as revenue declined, the company's gross margin fell by 3.6 pp to 41.1% year on year in the first half of the fiscal year, mainly due to the impact of deepening retail discounts, a slight increase in wholesale share, and an increase in inventory provisions. As a result, although the company did make the best efforts to control sales and management expenses and the absolute value of expenses also declined year on year, the company's net profit fell 34.6% to 0.87 billion yuan year on year, and the net profit margin decreased by 2.7 pp to 6.7% year on year.

The cash flow performance is still excellent, and the dividend rate remains high:

Inventory was 6.12 billion yuan, +6.4% YoY, accounts receivable 0.95 billion, -22.5% YoY. As a result, operating cash flow still reached 2.61 billion yuan, +2.5% YoY, and hematopoietic capacity was maintained. As a result, the medium-term cash dividend ratio continued to remain as high as 99.4%.

Profit forecasting and valuation

Considering that there is still pressure on the retail environment in the second half of the fiscal year, it is expected that sales and profitability will gradually recover under policy impetus. We expect FY25/26/27 revenue -7%/+6%/+5% to 26.8/28.3/29.8 billion yuan, net profit to mother -38%/+16%/+13% to 1.36/1.58/1.79 billion yuan, corresponding to PE11/9/8X, considering the company's strong cooperative brand matrix, healthy cash flow and high dividend attributes , maintaining a “buy” rating.

Risk warning: Special public opinion events on cooperative brands affect retail performance, spending power falls short of expectations