Description of the event

Bienleven announced 2024Q3 results. Q3 revenue, net profit to mother, and net profit after deduction of non-net profit were 1.06, 0.28, and 0.28 billion yuan, respectively, -4.4%, -17.3%, and -20.0% year-on-year, respectively. Revenue & performance fell short of expectations. The first three quarters achieved total revenue, return to mother, and deductions of 3, 0.76, and 0.73 billion yuan, or +7.3% compared with the same period last year.

Incident comments

Changes in product structure are dragging down gross profit, and new brand launches are dragging down expenses. Q3 gross margin declined by 2.0pct year-on-year. It is expected that mainly due to an increase in the share of cost-effective products, the decline in the markup ratio will drag down the gross profit level. The sales expense ratio is well managed and slightly increased by 0.2 pct year over year, and the management expense ratio is +5.2 pct year over year. It is expected that KC investment expenses will increase mainly due to the development of new brands, and it is expected that new brand expenses will continue to be invested in the future.

Inventory turnover has slowed slightly, and cash flow is weak. 2024Q3 Company's inventory turnover days were 304 days +8 days year over year, accounts receivable/payable turnover days were +5/-20 days to 31/65 days year over year, and operating cash flow was 0.12 billion yuan -0.24 billion yuan year over year, mainly due to increased accounts receivable and inventory.

The company accurately positions itself on the high-end sports and fashion boom circuit, adheres to the new brand concept of three high schools and one, and promotes rapid business growth based on expanding categories, expanding channels, and optimizing channel quality. Starting in 2022, Biyin Levin will use its category advantages to create a “junior T-shirt expert” and launch a “category leading” strategy upgrade; establish a golf division to seize the high-end fashion sports market; and strengthen marketing promotion through Forbidden City Cultural Co-branding, star cooperation, and tournament sponsorship. Following the acquisition of new brands in 2023, it is expected that the brand hierarchy will also be gradually improved to build a high-end brand group. It is expected that along with the gradual stabilization of the retail environment, the company's multi-brand matrix can be expected to grow. It is expected to achieve net profit of 0.91/1.06/1.19 billion yuan in 2024-2026, flat/+16%/+13% year over year, respectively. The PE corresponding to the current price is 13/11/10X, respectively, maintaining the “buy” rating.

Risk warning

1. Changes in the terminal retail environment;

2. Brand inventory removal falls short of expectations;

3. Macroeconomic changes at home and abroad.