Revenue increased 16% in 2023, e-commerce gross margin improved dramatically, and cash dividend ratio 91%. Hailan Home is a popular domestic menswear brand company. In 2023, the company's revenue increased 16% to 21.5 billion yuan, net profit to mother increased 37% to 2.95 billion yuan, and net profit increased 31% after deducting non-net profit. 1) By brand, revenue from Hailan House/Group Buying/Other brands increased by 20%/1%/6% respectively; 2) By channel, direct-run store/franchise store revenue increased 49%/10% respectively, and e-commerce increased 14%. The rapid growth of direct-run stores was mainly contributed by the opening of shopping malls.
In 2023, the company's gross margin increased 1.6 percentage points year-on-year to 44.5%. E-commerce and offline gross margins both increased. Among them, e-commerce gross margin increased significantly by 8 percentage points, mainly due to reduced promotional activities. The cost ratio increased by 1.5 percentage points year over year, mainly due to the increase in the share of direct management with a high sales expense ratio. Due to improved inventory, the asset impairment loss ratio decreased by 0.6 percentage points. Meanwhile, the divestment of male and female brands contributed about 150 million yuan in investment income in the third quarter, accounting for about 0.7% of revenue. As a result, the net interest rate to mother increased 2.1 percentage points to 13.7%. In 2023, the company achieved net cash flow from operating activities of 5.23 billion yuan, net current ratio of 1.8 billion yuan, free cash flow of 4.60 billion yuan, and cash dividends accounted for 91% of net profit to mother.
Revenue increased 9% in the first quarter, e-commerce performed well, and inventory improved slightly. In the first quarter, the company's revenue increased 8.7% to 6.18 billion yuan, and net profit to mother increased 10.4% to 890 million yuan. By channel, direct-run stores/franchise stores increased by 14%/0% respectively, while e-commerce grew significantly by 34%, driven by functional categories and series expansion. The company's gross margin increased 2.1 percentage points year-on-year to 46.7% in the first quarter. The expense ratio and asset impairment loss ratio increased, and the net interest rate due to mother increased slightly by 0.3 percentage points to 14.4%. The number of inventory turnover days in the first quarter was 240 days, a year-on-year decrease of 6 days. Statement inventory increased 6% year over year, lower than revenue growth.
By optimizing the category structure and upgrading channels, e-commerce still has significant growth dividends. Over the past 3 years, Heilan Home has actively reformed, laid out new categories of functional fabrics and shopping center channels, attracted young consumers, and optimized the sub-brand matrix. Looking forward to the future, on the one hand, offline stores will continue to expand steadily in shopping malls. On the other hand, e-commerce accounts for only 15% of revenue. Compared with fellow popular brands, there is still plenty of room for improvement. In the future, with category optimization and series expansion, it is expected to become an important driving force for growth.
Risk warning: repeated epidemics, channel reforms falling short of expectations, damage to brand image, systemic risks.
Investment advice: Expect steady growth, and focus on leading investment opportunities for high dividends and undervalued high-quality menswear. In the first quarter, the company maintained steady growth from last year's high base. Looking forward to the future, the company's shopping centers and e-commerce channels still have great potential for growth. At the same time, the sub-brand matrix has been optimized, boys and girls are showing sales, and the rest of the sub-brands are gradually reducing losses or profits, and the future is expected to maintain steady growth. Maintaining the 2024-2025 profit forecast and adding 2026 profit forecasts, the net profit due to mother for 2024-2026 is expected to be 33.2/37.1/4 billion yuan, an increase of 12.4%/11.8%/10.8% year-on-year. Due to the company's high operating quality, impressive cash dividends in 2023, and prominent e-commerce channel growth potential, the target price was raised to 9.7-10.4 yuan (originally 8.5-9.2 yuan) after the valuation switch, corresponding to 14-15x PE in 2024, maintaining a “buy” rating.