Key points of investment
The company released its 23 annual report and 24 quarterly report:
In 2023, we achieved revenue of RMB 21.53 billion (+16.0% YoY), net profit after deduction of RMB 2.95 billion (YoY +37.0%), net profit after deduction of RMB 27.01 billion (YoY +30.6%); 24Q1 achieved revenue of 6.18 billion yuan (+8.7% YoY), net profit attributable to mother of 887 million yuan (+10.4% YoY), net profit after deduction of 877 million yuan (YoY +10.8%), with steady growth.
In 2023, the company plans to pay a cash dividend of 2.69 billion yuan, with a dividend rate of 91.1%, up from 88%/86% in 21/22, corresponding to the dividend rate of 6.1% according to the current stock price.
The main brand recovered significantly in 23 years, and the second curve was adjusted and optimized
1) Main brands: 23 billion yuan in revenue of 16.46 billion yuan (+19.7% YoY), including overseas revenue of 272 million yuan (YoY +24.0%); net increase of 34 stores to 5976 (net increase of 198 direct sales and 164 net franchises); mature direct-run stores have an efficiency of 1.16 million yuan (+19.6% YoY); gross profit margin of 45.2% (+3.0pp), mainly due to an increase in the share of direct management.
2) Other brands: 23 billion yuan in revenue (+5.8% year-on-year), with boys and girls being divested in 23Q3, which had a negative impact on the company's overall revenue and positive impact on profits (22-year revenue of 620 million yuan, net profit of 140 million yuan); net sales of 1,376 stores to 901 (net sales of 93/1283 direct operations/franchises respectively); gross profit margin of 50.2% (-2.0pp).
3) Group purchase customization: Revenue of 2.28 billion yuan (+1.5% year over year), of which revenue in the first three quarters was +30%, and the increase came from the company expanding the tooling and school uniform market; 23Q4 revenue was -38% year over year. We expect mainly shipping delays; gross profit margin of 46.8% (-1.8pp year over year).
The overall gross profit margin in '23 was 44.5% (+1.6pp), the net profit margin to mother was 13.7% (+2.1pp), and the sales/management/R&D/finance expense ratios were +1.8/-0.5/-0.1/+0.3pp, respectively. The increase in gross margin and sales expense ratio was mainly due to the increase in direct management. Investment income of RMB 186 million for 23 years, including sale of shares of boys and girls of RMB 152 million and SPOTS investment income of RMB 34 million (Hailan invested 160 million yuan and held 40% of SPOTS shares).
The 24Q1 e-commerce growth rate was impressive. Looking at the profit contribution by brand: 24Q1 main brand revenue of 5.13 billion yuan (+6.5% YoY); revenue of other brands was 371 million yuan (-25% YoY), the decline was mainly due to boys and girls (positive contribution to profit); customized group purchase revenue of 550 million yuan (+54% YoY). We expect high growth mainly due to delays in 23Q4 order delivery to Q1. By channel:
24Q1 franchise revenue was 3.25 billion yuan (-5.8% YoY), direct revenue was 1.41 billion yuan (YoY +13.9%), and e-commerce revenue was 850 million yuan (YoY +34%).
The 24Q1 gross profit margin was 46.7% (+2.1pp year over year). We expect the increase mainly due to the increase in direct management share and loss reduction of sub-brands. Among them, main brands/other brands/group purchase customization are +0.6/+3.3/-0.7pp, respectively, and franchise/direct-management/online -1.2/+2.3/-0.04pp, year over year, respectively. The net interest rate for 24Q1 was 14.4% (+0.2pp year on year), and the financial expenses ratio was -0.9pp year on year, mainly due to convertible debt-to-equity swaps and reduced interest expenses; SPOTS's investment income was 99.4 million yuan.
Profit forecasts and investment suggestions:
We expect the main brand to return to a steady growth cycle as it continues to open offline stores, grow rapidly online, and expand overseas markets; other brands continue to optimize, which is expected to gradually reduce losses and contribute profits; and reposition the customized group buying business to open up the market ceiling. At the same time, SPOTS contributed investment income to increase profits.
The company's revenue for 24-26 is estimated at 238.7/262.3/28.63 billion yuan, +11%/10%/9%, net profit to mother 32.9/36.6/4.0.2 billion yuan, +12%/11%/10% YoY, 13/12/11 times PE, with an estimated dividend rate of 6.8%, undervaluation and outstanding high dividend attributes, maintaining a “buy” rating.
Risk warning: Consumption recovery falls short of expectations, sub-brand growth falls short of expectations, overseas expansion falls short of expectations