An overview of the incident. On November 11, 2024, Yuyuan Group announced the unaudited comprehensive results for the first three quarters of 2024. With 24Q1-Q3, the Group achieved revenue of 6.075 billion US dollars, +1.5% year on year, gross margin of 24.2%, +0.7 pct year on year, and net profit to mother of 0.332 billion US dollars, +140.9% year over year. Among them, 24Q3 achieved revenue of 2.06 billion US dollars, +12.5% year over year, gross margin of 24.1%, +0.6 pct year over year, and net profit to mother of 0.147 billion US dollars, +172.3% year over year.

The overall situation of the group. 1) Revenue split: 24Q1-Q3, total group revenue of 6.075 billion US dollars, +1.5% YoY. Manufacturing revenue was 4.136 billion US dollars, +9.0% year over year, including sneakers/outdoor shoes revenue of 3.248 billion US dollars, +7.2% year on year, casual shoes and sports sandals revenue of 0.535 billion US dollars, +15.1% year on year, sole, accessories and other revenue of 0.353 billion US dollars, +18.3% year on year; Baosheng retail revenue was 1.94 billion US dollars, -11.6% year on year (in RMB terms, -9.5% year on year). 2) Gross margin side: 24Q1-Q3, Group gross margin of 24.2%, +0.7 pct, 24Q3, gross margin of 24.1%, +0.6 pct year over year.

3) Expense rate side: 24Q1-Q3, sales rate is 10.3%, year-on-year -1.1 pct, management rate is 6.8%, year-on-year -0.2 pct; 24Q3, sales rate is 9.7%, year-on-year -1.6 pct, management rate is 6.8%, year-on-year -0.5 pct. Based on gross margin and rate conditions, in 24Q1-Q3, the group's net profit margin was 5.5%, +3.2 pct year on year; in 24Q3, the group's net profit margin was 7.1%, +4.2 pct year on year.

Manufacturing business: Good capacity utilization and shipment volume, cost control and optimization, leading to an increase in net interest rates.

1) Revenue side: 24Q3. With the further normalization of the global footwear market, demand for footwear products supplied by the Group increased dramatically, and the overall capacity utilization rate and production efficiency continued to rise due to full manufacturing orders. The Group's manufacturing business Q3 operations were not poor in the off-season, production capacity continued to be in short supply, footwear shipments grew strongly, and the unit price decline narrowed quarter by quarter. 24Q1-Q3, the manufacturing business revenue was 4.136 billion US dollars, +9.0% year on year, and shoe shipments were 0.187 billion pairs, +16.2% year over year. Due to the high base period effect and changes in product structure, the average sales price was 20.24 US dollars/pair, -6.8% year over year. 2) On the gross margin side: 24Q1-Q3, with a capacity utilization rate of 92% (23Q1-Q3 76%), and the gross margin of the manufacturing business was 19.6%, +1.6 pct year over year; in 24Q3, the gross margin of the manufacturing business was 20.6%, +1.4 pct year over year.

3) Profit side: 24Q1-Q3, net profit from manufacturing business was $0.302 billion, +174.2% year on year, net profit to mother was 7.30%, +4.40 pct year on year; in 24Q3, net profit from manufacturing business was 0.147 billion US dollars, +170.8% year on year, net profit to mother was 9.76%, +5.33 pct year on year.

Retail business: Guarantee profits and strictly control discounts, and improve business efficiency through digital transformation. 1) Revenue side:

Omni-channel performance is still relatively steady, but Baosheng's offline store traffic is weak. With 24Q1-Q3, the retail business achieved revenue of 13.984 billion yuan, or -9.5% compared to the same period last year. By streamlining and upgrading the Baosheng store network, the impact of poor traffic was partially offset. Baosheng's physical store revenue ratio was -14%, contributing 73% of revenue. Omni-channel performance was steady, revenue was +13%, and revenue accounted for 27%. 2) Gross margin side: Due to successful discount control and efficient inventory management, 24Q1-Q3, Baosheng's gross margin was 34.0%, an improvement of 0.9 pct over the previous year, 24Q3. The gross margin of Baosheng was 33.6%, +1.5 pct year over year. 3) Profit side: 24Q1-Q3, retail business operating margin was 3.7%, +0.4 pct year-on-year.

Investment advice: We expect revenue of 8.441, 8.834, 9.256 billion dollars, +7.0%, +4.8% year over year, and net profit to mother of 0.448, 0.482, 0.535 billion US dollars, +63.0%, +7.6%, and +11.0% year-on-year. The closing price on November 12 corresponds to PE 8, 8, and 7 times, maintaining the “recommended” rating.

Risk warning: international trade risk, exchange rate fluctuation risk, risk of terminal demand falling short of expectations.