The 2023 performance was outstanding and continued to have high dividends. 2024Q1 continued to grow steadily, maintaining the “Buy” rated company's 2023 revenue of 21.53 billion yuan (+16%), net profit of 2.95 billion yuan (+37%), 2023 dividend rate of 91.1%, 2023Q4 revenue of 5.96 billion yuan (+21.9%), and net profit of 500 million yuan (+23.3%) to mother.
2024Q1's revenue was $6.177 billion (+8.7%), and net profit attributable to mother was $887 million (+10.4%). Considering that consumer confidence is still recovering and the 2023Q3 one-off revenue of 160 million yuan, we slightly lowered the 2024-2025 and added 2026 profit forecast. The net profit for 2024-2026 is estimated to be 31.5/35.3/3.88 billion yuan (originally 31.9/3.61 billion yuan), EPS is 0.7/0.7/0.8 yuan, and the PE corresponding to the current stock price is 13.9/12.4/11.3 times. The main brand is expected to be steady offline, increase in e-commerce, and steady progress overseas. The sports sector continues to grow, and the 2024H1 dividend ratio is expected to be no less than 70%, maintaining a “buy” rating.
The main brands were bright in 2023, with a sharp increase in online gross margin. 2024Q1 increased online and gross margin was stable (1) sub-brand: Hailan Home's revenue in 2023 was 16.46 billion yuan (+19.7%), accounting for 79.3%, and the gross profit margin of 45.2% (+2.96pct) increased the main direct management share and e-commerce gross margin; group purchase revenue of 2.28 billion yuan (+1.48%), accounting for 11%, gross profit margin of 46.8% (-1.78pct); other brands had revenue of 2.02 billion yuan (+5.85%), accounting for 2.02 billion yuan (+5.85%) 9.7%, gross profit margin 50.2% (-2.0pct). 2024Q1 Heilan House/Group Purchase/Other Brands Revenue YoY +6.46%/+54.2%/-25.07%. The increase in group purchases was mainly due to time differences between shipments and customer confirmation. The decline in other brands was mainly due to the separation of boys and girls in 2023Q3, with gross margins of +0.6/-0.65/+3.25pct, respectively. (2) Channel: Online revenue of 3.26 billion yuan (+14.1%) in 2023, accounting for 15.7% (-0.25pct), gross margin +8.2 pct to 48.15%, overseas revenue of 270 million yuan (+24%), accounting for 1.3%, gross profit margin 68.9% (+2.6pct), higher than the pricing of major domestic products including shipping; 2023 direct operation/franchise revenue +49.3%/+10.5%, gross margin of -0.55pct +1.55pct to 62.6% /40.3%, respectively %.
2024Q1 online revenue +34% to 847 million yuan, gross margin -0.04pct to 47.6%, direct/franchise revenue +13.9%/+0.38%, direct/franchise gross margin +2.3/-0.65pct to 63.2%/41.7%, respectively.
Stores: Net increase of main brands in 2023/divestment of boys and girls. As of 2023, the share of direct sales of the main 2024Q1 brand continued to increase. As of 2023, 6877 offline main stores (-16.33%) had a net clearance of 1,342, including 5976 Hailan Home (+34), of which 198 were directly managed, and 901 other brands (-1376), of which 93 were directly managed.
As of the end of 2024Q1, Hailan Home had a net net operation of 5954 (-22) direct sales, which increased by 3.2 pcts to 21.3% compared to 2022. At the end of 2023Q1, 892 other brands (-9) joined the net.
Boys' and girls' divestments and joint ventures increased profits in 2023, with good inventory turnover and cash flow (1) Profitability: 2023 gross margin +1.6 pct to 44.5%, period expense ratio 25.8% (+1.5pct), and net interest rate of 13.7% (+2.1pct), which significantly increased investment income of 34.2 million yuan, mainly associated company SPOTS (40% holding), which contributed to a one-time income of $160 million. 2024Q1 gross margin was +2.1pct to 46.7%, and the period expense ratio of 24.0% (+1.3pct) led to a net interest rate of 14.4% (+0.2pct), and SPOTS contributed 9.94 million yuan in investment income. (2) Operating capacity: As of 2024Q1, the inventory volume was 8.22 billion yuan (+6%), the inventory turnover period was 240 days (-6). At the end of 2023, brand returnable inventory accounted for 84.8% (+13pct), and the net operating cash flow was 1.38 billion yuan (-3.9%).
Risk warning: Online growth, recovery of offline store efficiency, and progress of other brands falling short of expectations.