Incident: Kai Wang achieved revenue of 8.520 billion yuan in 2022, -5.84% year on year, and achieved net profit of 122 million yuan, or 39.44% year on year; 23Q1 company achieved revenue of 2,096 million yuan, -0.62% year on year, achieved net profit of 7,5926 million yuan, and lost 32.4351 million yuan in the same period last year.
Results in '22 were under pressure, and 23Q1 improved month-on-month. Looking at the revenue side, the company's total revenue in '22 was -5.84%, of which the revenue growth rate for maternal and child products/maternal and child services/supplier services/advertising business/platform services was -5.35%/-2.89%/-10.61%/-13.56%/+4.11%, accounting for 87.04%/2.95%/7.10%/0.87%/1.25% of revenue. 23Q1 The company's revenue was -0.62% year on year, which remained stable. On the cost side, the company's sales/management/R&D/finance expenses ratio in '22 was 21.30%/5.25%/1.04%/1.03%, respectively, and -0.12/+0.42/-0.08/-0.57pct; 23Q1 sales/management/R&D/finance expenses ratio was 19.70%/5.33%/0.72%/1.08%, respectively -2.77/-0.10/-0.42/-0.33pct. On the profit side, the 22-year/23Q1 company's gross margin was 29.91%/26.84%, year-on-year -0.69/-1.38pct, and the 22-23Q1 company's net profit margin was 1.41%/0.34%, and -0.81/+1.90pct year-on-year.
The impact of the pandemic+the cultivation of new stores affected short-term performance, and a return to elasticity can be expected in '23. On the one hand, the year-on-year decline in performance in '22 was a decrease in store traffic due to the pandemic; on the other hand, the company had a net increase of 82, 61, and 13 stores in 20, 21, and 22, respectively, and was mainly concentrated on opening in the second half of the year. In addition, the epidemic extended the cultivation cycle, short store hours, and increased operating costs, which put pressure on profitability in the short term; on the other hand, the new leasing guidelines also increased the company's upfront opening costs. As the impact of the epidemic was eliminated, passenger traffic gradually picked up, and the profitability of the 23Q1 company has improved. It is good to see that the profit side will return to elasticity in '23.
Accelerate omni-channel integration and enhance the consumer shopping experience. In order to meet the fragmented, social, and immediate characteristics of consumer demand, the company accelerated omni-channel expansion. On the offline side, the company is deeply involved in the direct management model of large stores and promoted the scenario-based, service-oriented and digital upgrading of stores. By the end of '22, the company had 508 stores in 20 provinces and cities across the country, a net increase of 13 over '21. On the online side, the company has built an online operating network including apps, WeChat accounts, mini-programs, WeChat stores, etc. At the same time, the company made full use of its omnichannel all-scenario advantages. In addition to physical stores, each store simultaneously opened local platform stores such as Meituan, Are You Hungry, and JD Came Home, and used traffic from content platforms such as Xiaohongshu, Dazhong Reviews, and Douyin to reach customers. At the same time, the company's micro-private domain service users exceeded 10 million. By the end of 22, online sales of maternal and child products accounted for 49.97% of the sales revenue of maternal and child products throughout the year.
Continuing to cultivate the single-passenger economy and build a differentiated supply chain and local lifestyle service ecosystem will open up room for further growth. The company dug deep into the output value of a single customer and created a complete single-customer economic model where “interaction creates emotion - emotion creates stickiness - stickiness brings high-value members - high-value members' reputation affects potential consumer members”. By the end of 22, the company's cumulative number of members exceeded 60 million (by the end of 21, the cumulative number of members exceeded 50 million). The company completed the initial construction of a differentiated supply chain system in '22. Currently, it has seven private brands: Beitou, Chu Yi Moe, Huidiantang, Pomelo, Plant Kingdom, Cottijia, and Vivid Bear, covering various categories such as supplies, toys, underwear, home textiles, and jewelry. The annual differentiated supply chain sales revenue was 584 million yuan, +30.04%, accounting for 7.87% of maternal and child product sales revenue. In addition, the company is gradually deepening the service ecosystem construction, establishing a “motherhood +”, “growth+” and “parent-child+” service ecosystem matrix, selecting high-quality local service providers to provide customers with diverse maternity services, child development services, and parent-child family services. While extending the life cycle of users, it is expected to open up room for profit growth.
Investment advice: Kai Wang is a leading maternal and child retail company, leading the industry with a single-customer economic model aimed at “managing customer relationships”. Strong competitive advantages have been established in terms of omnichannel integration, digital empowerment, and member operation. Benefiting from clearance on the supply side of the industry, the company's market share is expected to increase further. In the next step, the company will gradually develop a local lifestyle platform for mothers and children, which is expected to broaden business boundaries and bring about increased profits. We expect the company's net profit to be 30/44/ 530 million yuan in 2023-2025, corresponding to PE38.1/26.2/21.6X, giving it an “increase in holdings” rating.
Risk warning: The birth rate of the population is declining; the economic growth rate is declining; the effects of store expansion and cultivation fall short of expectations.