Revenue increased by 16.6% in 2023, reaching the target at the beginning of the year. The profit level was greatly improved, and the dividend rate was 90%.

The company is a leading brand in the men's pants segment. Revenue increased 16.6% to $3.05 billion in 2023, reaching the target of $3 billion set at the beginning of the year. By channel, direct/franchise revenue increased 35%/10% to 1.2 billion yuan/1.4 billion yuan, and online increased 5% to 340 million yuan. The gross margin increased by 4.1 percentage points to 63.6%, thanks to an increase in the share of direct management, a narrowing retail discount rate, and changes in the hierarchy of franchisees. The expense ratio decreased by 2.6 percentage points to 45.3% during the period. At the same time, losses due to changes in fair value were reduced, and net income from investment increased slightly. Net profit attributable to mother was 190 million yuan in 2023 (loss of 90 million yuan for the same period last year), achieving deduction of 240 million yuan in non-net profit, and a net profit margin of 6.3%. Net cash flow and free cash flow from operating activities increased sharply to $580 to 550 million yuan in 2023, and the company's cash dividends accounted for 90% of net profit attributable to mother in 2023.

Revenue increased 21.7% in the first quarter of 2024, with significant improvements after deducting non-net interest rates. In the first quarter, the company's revenue increased by 21.7% to 940 million yuan, direct operation/franchise revenue increased by 54%/9% respectively, and e-commerce declined. Excluding the impact of differences in shopping mall repayment times, the company's revenue increased by about 15% under the same caliber. Gross margin increased 4.4 percentage points to 65.0%. At the same time, the cost ratio was significantly reduced, but the loss of 100 million yuan due to changes in fair value caused a major drag on profits. Returned and deducted non-net profit for the first quarter increased 11%/95% year over year to 11.2 billion yuan, respectively, and deducted non-net interest rate increased 8 percentage points to 21.2% year over year. The company's inventory turnover increased by 8 days to 246 days year on year, while the inventory amount increased by only 9.5% year over year, which is lower than the revenue growth rate.

Create popular models of men's pants in multiple scenarios, enter high-potential channels, and promote brand image upgrading. In 2023, the company focused on the expert positioning of men's pants. In line with the brand upgrade strategy, the channel and product side were further optimized. On the product side, the company launched casual pants and business outdoor size 1 pants in February and April 2023, respectively. Functional elastic fabrics are used to improve wearing comfort and expand application scenarios. On the channel side, it has entered the Gaosheng Shopping Center channel to enhance the brand image. Currently, more than 1,200 new and reformed ten-generation stores have been opened and reformed.

Risk warning: The epidemic is repeated, strategic transformation falls short of expectations, brand image damage, and systemic risks.

Investment advice: Good performance in the first quarter. Focus on future growth opportunities to increase brand potential. The company focuses on core categories, uses mass media and international fashion weeks to boost brand tone and increase exposure, and invests in transformation and upgrading channels, and the brand's professional image and influence have been greatly enhanced. Results improved significantly in 2023. The first quarter of 2024 continued to be positive. The company plans to reach 3.4 billion yuan in 2024 revenue and a net increase of 50-100 stores, focusing on the growth opportunities brought about by the increase in medium- to long-term brand potential. Since the loss of 100 million yuan from fair value changes in the first quarter exceeded expectations, the profit forecast was lowered. Net profit due to 2024-2026 is expected to be 2.8/3.4/40 billion yuan, respectively (originally 2024-2025 was 3.4/40 million yuan), up 46%/20%/18% year-on-year. Since the reduction in profit forecasts was mainly affected, in fact, the company's revenue growth and non-net interest rate performance in the first quarter were better than expected, and the cash dividend for 2023 was impressive, maintaining a target price of 10.6-11.2 yuan, corresponding to PE 18-19x in 2025, maintaining an “gain” rating.