The company announced FY24 fiscal year results, achieving operating income of 28.93 billion yuan, a year-on-year increase of 6.9%, and net profit of 2.21 billion yuan, an increase of 20.5% over the previous year. The annual dividend ratio was 100.9%, maintaining a high dividend ratio.
By brand, revenue from FY24's main brands increased 6.5%, while revenue from other brands increased 10.5% year-on-year. By channel, FY24's retail business revenue increased 8.9% year on year, the wholesale business fell 3.3% year on year, and the number of stores decreased net by 421. We estimate that due to Adidas NEO closure adjustments, the gross sales area decreased by 0.8% year on year, while the single store sales area increased 6% year on year, reflecting the company's idea of pursuing a more accurate single store area in line with brand attributes, category attributes, and consumer attributes.
The gross margin improved slightly, and the cost ratio was significantly optimized. FY24 gross margin increased 0.1 pct to 41.8% year over year. Looking at the breakdown, positive factors include: 1) an increase in the share of retail businesses with high gross margins, and 2) a recovery in discount levels; negative factors include a decrease in relevant support from brands after the pandemic is over. FY24 government subsidies were reduced year on year, but the sales expense ratio decreased by 0.9 pct to 28.9% year on year. The fee ratio was significantly optimized, driving the increase in profitability.
The ability to generate cash income is strong, laying a solid foundation for high dividends. FY24 achieved a net cash flow of 3.13 billion dollars from operating activities, 1.4 times the net profit due to mother. The total dividend payout for the fiscal year ending February 2024 was 36 points per share, including 5 points per share for the final dividend of February 24, 15 points per share for the special dividend, and 16 points per share for the interim dividend, with a total payout ratio of 100.9%.
Looking forward to the future, we are optimistic about the steady recovery of international brands (especially Adidas, one of the main brands operated by the company) and the increase in sales of related products in the 24th Olympics. On the other hand, we are also optimistic about the company's continued expansion of outdoor and other brand operations to increase performance — the company announced in May that it has officially become the exclusive operating partner of the high-end trail running brand Norda in mainland China. The company attaches importance to high-quality growth, continuously optimizes its leading global retail operation capabilities, and is optimistic about the upward space for future profits as the basics of store adjustments are in place.
According to the company announcement, we adjusted our profit forecast for the next three years to forecast FY24-26 earnings per share of $0.36, 0.39, and 0.42 (original 0.38, 0.44 and 0.51 yuan), respectively. Referring to comparable companies, we gave FY15 times PE valuation, corresponding to the target price of HK$6.26 (1 RMB = HK$1.0767) to maintain the “gain” rating.
Risk warning: Fluctuations in the growth of major brand terminals, sportswear clearance progress, etc.