Winner Fashion (03709.HK) issued a profit announcement indicating that it recorded an increase of > 20% year-on-year and > 120% year-on-year in 2023, which is in line with our expectations. The increase is mainly due to i) increased sales of multi-channel products, ii) product improvements, and iii) operational optimization.
Sales of products from multiple channels increased: According to data from the National Bureau of Statistics, total retail sales of clothing products increased by about 15.4% year-on-year in 2023, with growth in the fourth quarter being particularly significant. A strong quarterly recovery brought ideal results to Winner Fashion (03709.HK), and more importantly, brought confidence to the group and distributors in the context of several seasons of inventory removal. We think distributors' expressions at order meetings in the first half of this year will be more positive, but the uncertain macro environment is still a factor we are concerned about, and we need more evidence to make our attitude more optimistic.
Product improvement: Winner Fashion (03709.HK) optimizes its product mix in the direction of i) increasing the proportion of classic Evergreen models and ii) strengthening brand awareness. Launching the classic Evergreen model will help the Group i) strengthen its brand image, ii) optimize the inventory structure, and iii) reduce inventory risks brought about by changing trends. Thanks to the ideal inventory removal progress last year, we believe the Group still has room to make progress in improving its products.
Operational optimization: We are positive that Winner Fashion (03709.HK) continues to benefit from operational optimization. At the same time, we believe that optimization mainly comes from passing through larger stores to replace smaller stores. Replacing smaller stores is still one of the Group's core strategies for the coming year, and changes in the total number of stores in 2024 are not expected to be too significant. Furthermore, compared to targeting stores with an area of about 150 square meters in the past, the Group intends to establish larger, more efficient stores with an area of about 200 square meters to increase the possibility of cross-selling and reduce the average demand for employees per square meter.
The ideal performance is in line with expectations, and reaffirms the “buy” rating: Winner Fashion (03709.HK) delivered strong results in 2023, which is close to our expectations. We anticipate that the Group will continue to achieve stable internal growth next year, and that the dividend ratio will remain at a high level even with the same business plan. A stable business expression and dividend ratio will enable the Group to maintain a reasonable level of appeal in the Hong Kong market. Therefore, we reaffirm our assessment of the group's “buy” and maintain the target price at HK$16.78 per share.