The current situation of the company

Recently, we have organized a number of investor exchange meetings, during which we had in-depth exchanges on the current situation of the company, future development strategy and so on.

Comment

Brand reform has achieved results, and the recent terminal performance is better than market expectations. Since 2020, the company has carried out multiple changes in products, marketing and channels. In terms of products, the company takes men's pants as the core, devotes itself to reducing SKU, creating popular style items such as small black trousers and casual pants, cutting into the consumption scene between sports and business, and connecting to the clothing category; in the customer group, according to the company's research, the first mention rate of brand consumer men's pants has significantly increased, and the proportion of high-end customers with strong spending power and young customers under the age of 35 has increased significantly. In terms of channels, the company has newly upgraded ten-generation stores, significantly increased the proportion of shopping malls, and reduced the proportion of street stores and department stores. We expect that the company's flow growth in January and February is better than that of the same industry, the discount control is steady, and the effect of brand upgrading is obvious.

The upgrade of the tenth generation store continues to advance, and the performance inflection point is coming. Customer base, product and channel iteration are the underlying logic. In the process of strategic upgrading, we expect that the driving force of the company's revenue growth will mainly come from the improvement of store efficiency, and the number of channels will maintain a steady and slight increase. We estimate that the average monthly efficiency of the company's 10th generation stores has reached about 200000 yuan per month, with a significant improvement; the number and proportion of the 10th generation stores have increased steadily, reaching about 800by the end of 2022, and we expect to exceed 1000 by the end of 2023, and the update progress will be maintained steadily in the future. Overall, we estimate that the number of stores of Jiumuwang brand 2023 Universe in the year 2023 will be 45 to 2272max compared with the same period last year, and the average annual store efficiency at the end of the report will be + 23%, 18%, to 1.28,000,000 yuan, driving the company's revenue from + 28%, 19% to 43.2 billion yuan, year on year.

The transformation of marketing mode, income growth and cost control have greater profit flexibility. Since the strategic transformation, the rate of advertising and business publicity expenses has doubled to 8.8 per cent of 1H22. Considering that the promotion rate of men's pants in the company has reached a good level, we expect that marketing investment will change from hard and wide to content marketing, and the proportion of advertising investment in revenue will go down. In 2022, the company forecast a loss of about 80 million yuan, and its performance hit bottom. We expect that with the recovery of consumption and the control of expenses, the company's main business profit is expected to be repaired gradually (excluding investment income, the net interest rate of the main business before the epidemic can reach 14%).

Profit forecast and valuation

We maintain the company's 24-year profit forecast of 326 million yuan basically unchanged, and the current stock price corresponds to the company's 2023 August 20x and 15xP/E respectively, maintaining an industry rating that outperforms. We are optimistic about the firm determination to carry out strategic change as a leading menswear brand, and considering that we have achieved phased development results and can enjoy a certain degree of valuation premium, we raise the target price by 31.3% to 14.82 yuan, corresponding to the company 2023 26x and 20xP/E, respectively, which is 30.1% higher than the current stock price.

Risk

The progress of store upgrade and the improvement of store efficiency are not as expected, the marketing investment is higher than expected, and the risk of investment loss.