Performance situation: 2024Q1-Q3/Q3, the company achieved revenue of 12.281/4.523 billion yuan, +22.8%/+19.3%, adjusted net profit of 1.928/0.686 billion yuan, +13.7%/+6.9%, adjusted net interest rate 15.7%/15.2%, -1.3/-1.7pct year on year.
Domestic stores are under pressure, and the IP strategy has led to a steady increase in customer unit prices: domestic Mingchuang Premium Q1-3/Q3 achieved revenue of 7.03/2.44 billion yuan, +14.0%/+5.7% year-on-year. As of September 2024, the number of Mingchuang Premium stores in China was 4,250, with a net increase of 135 stores in Q3. The single-digit decline in domestic Mingchuang Premium same-store sales in the first three quarters (average customer unit price/average customer order volume ratio +0.2% /- middle single digit). It is expected that, driven by IP strategy sales, the same stores in high-tier cities will outperform lower-tier cities. The Q3 same-store decline widened further compared to the first half of the year (1H24 same-store decline of about 1.7%), mainly affected by offline customer traffic and Barbie's high base in the same period last year.
TOPTOYQ1-3/Q3 achieved revenue of 0.7/0.27 billion yuan, +42.5%/+50.4% year-on-year. The Q1-3TOPTOY revenue growth rate was impressive, mainly due to the increase in the number of units in same-store sales and the rapid increase in the average number of stores. As of September 2024, the number of TOPTOY stores reached 234, with a net increase of 86/39 stores in Q1-3/Q3.
Overseas store expansion is steady, and the Q4 peak season is expected to usher in performance release: Overseas Mingchuang Premium achieved revenue of 4.54/1.81 billion yuan in Q1-3/Q3, +41.5%/+39.8% over the same period last year. Among them, Q1-3 direct/agency market revenue achieved revenue of 2.448/2.095 billion yuan respectively, +54%/+46% year-on-year. As of September 2024, the number of overseas Mingchuang Premium stores reached 2,936, with a net increase of 183 stores over the previous quarter. Q1-3 Overseas same-store sales achieved high unit growth. By region, Q1-3 same-store sales in Latin America/North America/Asia/Europe achieved 10-20% low/medium units/high units/low unit growth respectively. In Q3, there was a net increase of 14/60/88/16 stores in the region, respectively. It is expected that with the arrival of the Q4 overseas peak season, combined with Harry Potter IP catalysis, overseas sales performance will be further released.
Gross margin reached a record high, with a year-on-year increase of 5.1 pct: In terms of gross margin, the Q1-3 company achieved a gross profit margin of 44.1%, an increase of 3.7 pct year over year, and the company's gross margin increased 3.1 pct to 44.9% year on year in a single quarter, reaching a new high. The increase in Q1-3's gross margin was mainly due to 1) the increase in overseas revenue share and overseas direct market revenue share; Q1-3 increased the share of overseas revenue from 32% last year to 37% this year, and the revenue share of the overseas direct sales market increased from 14.9% last year to 19% this year; 2) With the effective implementation of IP strategies, Mingchuang Premium's overseas and TOPTOY gross margins increased by medium to high single digits. In terms of expense ratios, in Q1-3/Q3, the company's sales expenses ratio was 20.5%/22.0%, +4.9/+5.1pct, mainly due to the accelerated expansion of stores in overseas direct sales markets, leading to increased expenses related to rent, depreciation, amortization, wages, etc.; the company's management expenses ratio was 5.3%/5.2%, +0.4/+0.7pct, mainly due to the increase in personnel related expenses related to business growth.
The target price is HK$58.29, maintaining the purchase rating: As the world's leading integrated retail brand, the company has extensive space to expand stores at home and abroad. Looking forward to the future, the company's profitability is expected to continue to increase as the share of overseas sales increases, brand upgrades, and the deepening implementation of the super IP strategy. We expect adjusted net profit of $2.81/3.57/4.34 billion for 24-26, respectively, so the target price is HK$58.29, which is equivalent to 20 times the PE forecast for FY25. This is a 23.9% increase from the current stock price, which is a purchase rating.
Risk warning: 1) Tariff policy risks; 2) Store expansion falls short of expectations; 3) Increased competition