Key points of investment
The company released its annual report for the year 23, achieving annual revenue of 13.66 billion yuan, and net profit attributable to mother/net profit of 11.2/1.02 billion yuan without return to mother, +76.1%/+105.3%, respectively. Revenue grew steadily throughout the year, and the growth rate was relatively fast under a low profit base. Single Q4 achieved revenue of 4.76 billion yuan, +8.5% year-on-year, net profit attributable to mother/net profit of 2.9/250 million yuan, respectively, -20.8%/-25.0% year-on-year, respectively. Single Q4 revenue growth accelerated month-on-month, and asset impairment losses caused profit fluctuations of +60.6% year-on-year.
The leading position for children's clothing is stable, and the depth of casual adult clothing is adjusted
By business, children's clothing revenue in '23 was +4.9% to 9.37 billion yuan, gross margin was +4.9pct to 46.8%, and the net number of stores closed 155 to 5234. The company's children's clothing brand Barabara continues to lead the Chinese market, with both revenue and gross margin increasing, and its leading position is stable. According to Euromonitor data, the Barabara brand held the first place in market share in 23, reaching 5.2% (+3.3 pct compared to the second place). The leading advantage is obvious. The size of the Chinese children's clothing market reached 5.7% in 2023-2028E, and there is plenty of room for development.
The casual wear revenue in '23 was -2.6% to 4.17 billion yuan, gross margin was -2.0pct to 38.0% year on year, and the net number of stores closed 48 to 2,703. The casual wear business is temporarily under pressure. It is expected that with the further implementation of organizational changes in the product management system, improvements in product operation efficiency are worth looking forward to.
Direct management efficiency has increased dramatically. The transformation results of digital stores have been shown by channel. Direct management/franchise/joint venture revenue was -3.5%/+19.2%/+9.7%/-51.9% to 62.3/13.7/57.8/160 million yuan, with gross margins of +2.5pct/+1.9pct/ -5.8pct to 67.6%/39.2%/62.5%, respectively. Direct management/franchise closed 154/1020 inefficient stores, opened 112/848 new high-quality stores, and +26.5% /26.5% + 12.3% to 202/810,000 yuan, and the ping efficiency was +36.3%/+14.0% to 9425.1/4422.9 yuan respectively. Offline channels were deeply adjusted, and the digital reform of stores boosted efficiency. By the end of '23, more than 4,000 stores had achieved digital store upgrades.
Online revenue in '23 was -3.5% to 6.23 billion yuan, and gross margin was +4.2pct to 43.0%. The main reason was that discounts on new products continued to rise through online channels, increasing the share of the same price globally, driving up gross margin, and putting some pressure on online sales.
Gross margin improved significantly. The profit margin fluctuated due to asset impairment in Q4, +2.7pct/-0.4pct/+0.2pct/-0.2pct to 44.0%/24.1%/4.6%/2.1%, respectively. The increase in gross margin was mainly due to online channel discounts in the children's clothing business. The overall cost ratio declined steadily during the period, and 23Q4 asset impairment losses were +60.6% to 280 million yuan, partially offsetting the increase in gross margin and the reduction in operating margin/return to mother in '23 Net interest rates were +4.5pct/+3.4pct to 11.0%/8.2%, respectively. The improvement in profitability was significant, but there is still room for improvement compared to the net interest rate of 9.6% returned to mother in '21.
Inventory turnover improved markedly, cash flow was abundant, and operating quality improved year-on-year inventory -28.6% to 2.75 billion yuan, and inventory turnover days were -26 to 159 days year on year. Judging from the storage age structure, inventory within 1 year/1-2 years/2 years or more accounted for 53.4%/27.5%/19.1%, respectively. Inventory book value was at a historically low level, turnover accelerated significantly, and was installed 24 young. Net operating cash flow was +65.1% year-on-year to 1.94 billion yuan in '23, and there is a clear trend of improving operating quality.
Profit forecasting and valuation
The company's net profit for 24-26 is estimated to be 13.0/15.0/1.70 billion yuan respectively, corresponding to a growth rate of 16%/15%/14%, and the PE corresponding to the market value as of 2024/4/2 is 12/10/9X. The company is deeply involved in the apparel industry. The main brands Barabara and Semma have strong brand power, benefiting from store reforms and organizational changes. Direct management efficiency has greatly improved, demonstrating the results of the reform and maintaining a “buy” rating.
Risk warning: terminal consumption falls short of expectations; changes in consumer preferences