Gao du achieved better-than-expected performance in fiscal year 2021, with revenue / net profit + 6.9% and 20.3%. In the short term, it continued a steady recovery in May 2021, was basically the same as in 2019 during the May Day period, and is expected to return to normal growth in the second half of the year. Good performance not only reflects the recovery of terminal demand, but also reflects the company's considerable progress in channel optimization, efficiency upgrading and digital empowerment. In the long run, the company insists on channel reform and digital promotion, and continues to enhance the depth of brand cooperation, which is expected to strengthen comprehensive advantages, become an indispensable part of brand DTC transformation, accelerate industry integration and increase share. The current valuation is still significantly lower than the leader of the sports industry chain, raising the target price to HK $18 and maintaining a "buy" rating for 25X PE, in fiscal year 2023.
In fiscal year 2021, revenue / net profit increased by 6.9% and 20.3%, and the net profit performance significantly exceeded expectations. In fiscal year 2021, the company achieved revenue of 36.009 billion yuan (+ 6.9%) and net profit of 2.38 billion yuan (+ 20.3%), of which FY2021H2 income / net profit was + 21.0% and 75.5% respectively. From a profit point of view, increased discounts led to a slight drop in gross margin 1.3pcts to 40.8 per cent. Continuous improvement in retail efficiency and outstanding cost control drive sales & administrative expense rates fell by 1.8pcts/0.7pct to 26.8% and 3.5%, respectively. Taken together, the net interest rate increased 0.9pct to 7.7%.
We will actively promote the strategy of sinking big stores and channels, and the overall area will increase steadily. During the reporting period, the company continued to optimize the store structure under the background of the epidemic. Although Jingguan Zhiying stores ranged from 389 to 8006 (713 newly opened / 1102 closed), the overall sales area was still + 4.1%. In terms of store size, there are 5192 stores (- 540) below 150,000 square meters, 2064 (+ 13) stores with 150,300 square meters, and 750stores (+ 138stores) with more than 300square meters, accounting for 64.8%, 25.8%, 9.4% respectively (68.3%, 24.4%, 7.3%, respectively, in the same period last year). In addition, the number of company members increased steadily, with a total of 40.9 million registered members during the reporting period, accounting for 95.3% of the total sales.
The improvement of retail sales promotes the continuous improvement of inventory, and the operating cash flow is still relatively healthy. During the reporting period, the number of days of inventory turnover decreased by 10 days to 110 days, while the overall retail discount was relatively controllable, achieving a net operating cash flow of 4.705 billion yuan.
Corporate change: digital empowerment-a key factor ignored by the market. During the epidemic, the company practiced its internal skills and made great progress in digital empowerment, including: (1) in commodity management, it realized the accurate single-store digital procurement, transfer and replenishment of most brand customers, and extended it to downstream retailers on a large scale. 2 in terms of store management, fully popularizing mobile toolkits to enable front-line employees, and applying data packages such as real-time data to manage the immediate sales of stores more accurately, almost all direct stores have been covered by the end of fiscal year 2021. 3 on the basis of the online community of existing stores, the company has accelerated the flexible application of digital tools, including Mini Program and out-of-store sales, while opening new functions of rice and flagship stores, further extending the reach of goods and services.
Risk factors: terminal retail fluctuation risk; store expansion is not as expected; upstream supplier delivery risk.
Investment suggestion: the company achieves better-than-expected performance with outstanding comprehensive capabilities, and the management is optimistic about the future. We are optimistic about the short-term recovery and future growth of the company, so we raise the EPS forecast for fiscal year 2022 to 0.53 EPS 0.62 yuan (the original EPS forecast is 0.47 EPS 0.54 yuan), and increase the EPS forecast for fiscal year 2023 to 0.72 yuan. In the long run, the company insists on channel reform and digital promotion, and continues to enhance the depth of brand cooperation, which is expected to strengthen comprehensive advantages, accelerate industry integration and increase share. With reference to the average valuation of the leader of the sports industry chain, the company was given a target price increase of HK $18 for 25X PE, in fiscal year 2023, maintaining a "buy" rating.