The company announced its 2023 results, and the performance was in line with expectations. In 2023, the company's revenue increased 22.1% year on year to 6.91 billion yuan, and net profit to mother increased 119 percent year over year to 84 billion yuan (data from the company announcement, same below). The performance was in line with expectations. The company paid out HK$0.7 per share, with a dividend payout ratio of 51%, and a dividend ratio of about 5%. The dividend rate was 50% or more for 4 consecutive years.

All brands have achieved rapid growth, and same-store promotion has become the core driver. 1) Steady growth of major brands. Koradior brand revenue increased 21% to 2.39 billion yuan in '23, accounting for 35% of revenue, and a net decrease in the number of stores by 24 to 714, indicating strong same-store sales growth. NAERSI's revenue increased 18% year over year to 1.46 billion, accounting for 21% of revenue, and a net decrease in the number of stores by 24 to 454. NEXY.CO's revenue increased 28% to 1.03 billion yuan, becoming Winner Fashion's third brand with revenue exceeding 1 billion dollars, accounting for 15% of revenue, and a net increase in the number of stores from 30 to 231. 2) Growing brands performed well, and emerging brands continued to be incubated. The luxury brand La Koradior grew strongly by 34% to 460 million yuan, accounting for 7% of revenue, and a net increase in the number of stores by 3 to 46. Gathering's revenue increased 20% to 530 million yuan, accounting for 7.7% of revenue. The number of stores decreased by a net of 15 to 172, and the effect of improving the quality and efficiency of stores was obvious. CADIDL's revenue increased 23% to 430 million yuan, accounting for 6.2% of revenue, and a net increase of 10 stores to 161. NAERSILING's revenue increased 22% to 500 million yuan, accounting for 7.2% of revenue, and a net decrease in the number of stores by 2 to 95. The revenue of the emerging brand FUUNNY FEELLN increased 12% to 140 million yuan, accounting for 2% of revenue, and a net decrease of 20 to 91 stores.

Online Douyin is growing strongly, and offline direct sales are increasing in efficiency. 1) Deepening of the online channel layout and steady growth. Online revenue increased 8% year over year to 970 million yuan, of which Tmall grew 4% to 240 million yuan, accounting for 25% of e-commerce platforms; Vipshop grew 10.5% year over year to 4.4 billion yuan, accounting for 45.5% of e-commerce platforms; and EEKA decreased 42% year over year to 0.7 billion yuan, accounting for 7.4%, mainly related to the full recovery of offline consumption and the decline in the share of online sales. Douyin grew 39% to 190 million yuan, accounting for 19.3% of revenue. 2) The scale of offline stores has shrunk, and structural optimization has driven outstanding store efficiency. In 2023, the number of offline stores reached 1964, a net decrease of 42. Among them, there were 1,525 direct-run stores, a net decrease of 30 from the beginning of the year. Direct operating revenue increased 25% year-on-year to 5.56 billion yuan, accounting for 80%. There were 439 dealerships, a net decrease of 12 from the beginning of the year. Revenue increased 15% year over year to 380 million yuan, accounting for 6%. In 2023, the average area of new direct-run stores opened by the company was close to 200 square meters, and the number of direct-run stores of 200 square meters and above reached 361, accounting for 24%, driving significant improvements in store efficiency.

In 2023, direct-run store efficiency increased 18% year-on-year, direct-run store efficiency increased 28% to 3.65 million, top single store sales revenue was more than 20 million, and 10 million stores exceeded 50. The share of department stores among offline direct-run stores fell by 2pct to 65%, while shopping malls remained at 12%.

Profitability has been greatly improved, and inventory turnover efficiency has increased. 1) Expense rates have declined, and profitability has increased steadily. Driven by a two-pronged approach of product discount promotion and intensive supply chain management, gross margin increased steadily for 6 consecutive years, reaching 75.3% in 23 years, an increase of 0.18 pct over the previous year. The sales expense ratio was 54.7%, down 2.5 pct year on year, the management expense ratio was 8.8%, down 1.8 pct year on year, and the net profit margin increased sharply by 5.4 pct to 12.0%. 2) Improved inventory turnover and abundant cash flow. The number of inventory turnover days reached 233 days, a year-on-year decrease of 23 days, the number of accounts receivable turnover days decreased by 4 to 31 days, and the cash flow from operating activities reached 1.57 billion yuan, with sufficient capital.

The excellent product system has shown results, with a target retail sales volume of 10.5 billion yuan by 2024. The company's excellent product system was implemented for about a year, with remarkable results. It clarified the core categories of the brand, continued to establish methodologies in dividing product structures such as main sales models, best sellers and fashion models, and increasing the production and sales ratio of new products. At the same time, we actively support core suppliers. The share of the top 5 suppliers increased by 2.15 pct to 30.67% in the first 23 years, reducing costs by an average of more than 10%, continuing to promote cooperation with leading manufacturers and suppliers to experiment with production area transfers. In '24, the company will continue to promote product upgrades and channel optimization to drive store efficiency improvements, with a target retail sales volume of 10.5 billion yuan.

The company adheres to offline channel optimization and online channel construction. Various brands are steadily improving, digital transformation and product system reform are progressing steadily, and maintaining a “buy” rating. Considering that the recovery in the current retail environment is still relatively weak, we slightly lowered the company's 24-25 profit forecast and added a 26-year profit forecast. The net profit for 24-26 is 10.1/11.7/1.37 billion yuan (the original 24-26 year was 1.08/1.26 billion yuan), corresponding to PE 9/7/6 times, respectively, maintaining the “buy” rating.

Risk warning: brand performance and channel expansion fall short of expectations; risk of inventory backlog.