The 2020 performance is better than we expected.
The company announced its 2020 results: revenue was 3.057 billion yuan, down 25% from the same period last year; the net profit loss was 118 million yuan, and the loss narrowed by 91%, which was better than we expected, because the effect of product and channel reform was better than expected.
4Q20 ushered in an operating inflection point, with 2H20 revenue down 8 per cent year-on-year and a significant improvement over the 40 per cent decline in 1H20. From a year-on-year perspective, 2H20 retail revenue increased by 9% compared with the same period last year; e-commerce revenue increased by 26% year-on-year, and the online share increased to 25%; franchise revenue decreased by 29% compared with the same period last year, mainly due to the impact of the epidemic on the confidence of franchisees to pick up goods in March, autumn and winter, as well as 2H20 home service wholesale transfer joint venture model. Excluding the change in sales model, 2H20 franchisee revenue only decreased by about 13% compared with the same period last year. The company's operating performance has improved significantly since 4Q20, and sales almost returned to the level of the same period in 2019, of which direct same-store sales increased by 7.4% compared with the same period last year. The sales rate of autumn and winter products in 2020 increased by about 10ppt.
Gross profit margin rose sharply in 2020, and 2H20's net profit turned into profit. The gross profit margin rose sharply to 48.8% in 2020, mainly due to: 1) the proportion of income from bra products with high gross margin increased to 49%, while the proportion of income from buying and selling of raw materials with low gross margin fell by 2.5ppt to 0.5%. 2) the product strength is improved, the sales rate is higher than the same period last year, and the product discount is reduced. 3) increased supply chain and commodity operation capacity and reduced costs; 4) part of the sale of inventory that has been set aside in 2019. The total rate of sales and management expenses has been reduced to 54.2%, mainly due to the optimization of sales channels, the closure of some inefficient and loss-making stores, and the reduction of employee welfare costs. The net profit loss in 2020 narrowed 91% to 120 million yuan, of which 2H20 has contributed 13.25 million yuan in positive profit. The operating cash flow is reaching 555 million yuan (a net outflow of 250 million yuan in 2019).
Product planning reform, the clearance of old inventory is coming to an end. In 2020, the company made great efforts to reform its product planning, moving from fast fashion sexy products to technology, health, comfort and cost-effective products, focusing on classic products and significantly reducing the total number of SKU, such as the total SKU of products in spring, summer, autumn and winter 2020 decreased by more than 30% year on year. By the end of 2020, the company's old inventory in 2019 and before had been cleared by about 62% (at cost), and inventory had gradually returned to a healthy level.
Trend of development
The management directs the net opening of 200-300 stores in 2021. 1Q21's performance continues to recover. From January to March 14, 2021, the company's revenue increased by 40% compared with the same period last year, and sales in direct stores and franchised stores increased by 37% and 28% respectively.
Profit forecast and valuation
Keeping the 2021 EPS forecast unchanged, considering the gradual effect of product and channel reform, raising the 2022 EPS forecast by 11% to 0.10 yuan, the current stock price corresponds to the price-to-earnings ratio of 11.6 times earnings in 2021 / 22, maintaining a neutral rating. Keep the target price unchanged at 1.44 yuan, corresponding to 14 times 2021 price-to-earnings ratio, which has 20% upside compared to the current stock price.
Risk.
The epidemic situation has been repeated for a long time, the competition in the industry has intensified, and the product reform is not as expected.