In the first three quarters, revenue and net profit attributable to mother were -5.6% and -15.2% year-on-year, Jinhong Group released its report for the third quarter of 2024. The company achieved operating income of 2.92 billion yuan in the first three quarters of 2024, a year-on-year decrease of 5.6%, net profit of 0.16 billion yuan, a year-on-year decrease of 15.2%, after deducting non-net profit of 0.14 billion yuan, a year-on-year decrease of 14.1%, and EPS of 0.47 yuan.

The company's net interest rate to mother fell 0.6 PCT to 5.5% year on year in the first three quarters. Looking at a single quarter, 2024Q3 achieved revenue of 0.85 billion yuan, a year-on-year decrease of 14.2%, net profit to mother of 13.89 million yuan, a year-on-year decrease of 70.6%, and net interest rate to mother of 1.6%, a year-on-year decrease of 3.1 PCT. In 2024Q1/Q2, the company's revenue was -1.2%/-2.0%, and net profit to mother was +13.2%/-22.4%, respectively. The decline in revenue and profit of 2024Q3 in a single quarter increased month-on-month.

TW brand/Vignas/Yunjin revenue YoY -3.8%/-17.7%/+75.7% by brand, TW Brand/Vignas/Yunjin's revenue in the first three quarters was -3.8%/-17.7%/+75.7%, and the revenue share (share of total revenue, same below) was 77.7%/19.3%/2.0%; combined with the revenue ratio of the three brands in the first half of the year -0.3%/-12.6%/+115.1%, the estimated Q3 revenue YoY -11.7%/-27.7%/Single Q3 month-on-month ratio The revenue of all brands weakened in the first half of the year.

By channel, the company's online/offline channel revenue in the first three quarters was -2.0%/-7.9%, respectively, accounting for 37.4%/61.6% of revenue; combined with online/offline revenue of -0.4%/-2.2% YoY in the first half of the year, it is estimated that Q3 revenue was -5.8%/-19.2% YoY, and the decline in online/offline revenue in Q3 increased.

In terms of the number of offline stores, as of the end of September 2024, the number of TW brand/Vigners offline stores was 1060/189, and -38/ -8 compared to the beginning of the year, with changes of -3.5%/-4.1%, respectively. The number of offline stores in Yunjin was 1, the same as at the beginning of the year; by store type, the number of TW brand directly/franchise stores was 756/304, respectively, -104/+66, respectively, with a change of -12.1%/+27.7% for the TW brand, respectively There were 53 companies in the first three quarters Direct management to franchise stores; the number of Vignas' direct-managed/franchised stores was 135/54, respectively, +1/-9 compared to the beginning of the year, with changes of +0.7%/-14.3%, respectively. Among them, there were 3 Vignas franchised stores in the first three quarters.

Gross margin remained flat, expenses increased, inventory increased compared to the beginning of the year, and net operating cash flow decreased gross profit margin: gross margin increased 0.1 PCT to 69.3% year-on-year in the first three quarters of 24 years. By brand, gross margins of the TW brand/Vignas/Yunjin were 67.5%/74.9%/75.8%, respectively, -0.5/+1.4/+1.3PCT; by channel, online/offline gross margins were 64.1%/72.2%, respectively, -0.4/+0.3 PCT year on year. On a quarterly basis, gross margins for the 24Q1 to Q3 single quarter were 70.2%/68.4%/68.9%, respectively, +0.8 PCT/flat/-0.8 PCT year-on-year, respectively.

Expense rate: The cost ratio increased by 1.1 PCT to 62.0% year over year during the first three quarters of 24 years. Among them, sales/management/R&D/finance expenses were 52.0%/5.1%/3.3%/1.6%, respectively, +0.6/-0.9PCT year on year. The year-on-year decline in financial expenses was mainly due to a decrease in syndicated loan balances and a decrease in interest expenses. The cost rates for the 24Q1 to Q3 single quarter were -0.1/+1.7/+2.5PCT, respectively. Among them, 24Q3 was mainly due to an increase in sales and R&D expenses, +2.0/+0.8 PCT, respectively.

Other financial indicators: 1) Inventory at the end of September '24 increased 15.5% from the beginning of the year to 1.07 billion yuan, a year-on-year decrease of 0.1%; the number of inventory turnover days was 299 days, a decrease of 14 days over the previous year. 2) Accounts receivable decreased by 25.7% to 0.31 billion yuan at the end of September '24 compared to the beginning of the year, a year-on-year decrease of 8.6%; the number of accounts receivable turnover days was 34 days, an increase of 4 days over the previous year. 3) Net operating cash flow was 0.37 billion yuan in the first three quarters, a year-on-year decrease of 21.6%.

Q3 performance weakened month-on-month, expecting a gradual recovery in terminal retail sales. Maintaining the “buy” rating. Against the backdrop of weak terminal retail, the company's Q3 performance weakened month-on-month. The company continues to optimize the channel structure, and the offline channel TW brand and the Vignace brand promote direct management and franchise to improve operating efficiency, while enriching the offline store structure and upgrading the store format; the Douyin platform operates more refined in online channels, creates multiple live streaming accounts, and increases investment in e-commerce channels such as DeWoo and Xiaohongshu. We look forward to a gradual recovery in terminal retail, an improvement in the company's sales performance during the peak winter season, and a continuous increase in profitability with an increase in the franchise ratio and a more balanced business structure in the future. Considering the uncertainty of consumer demand, we lowered the company's profit forecast for 24-26 (net profit reduced by 30%/28%/28% from the previous forecast, respectively). Based on the latest share capital, the corresponding EPS for 24-26 was 0.73/0.93/1.08 yuan, and PE was 10/8/7 times, respectively. The valuation was low, and the “buy” rating was maintained.

Risk warning: Consumption recovery falls short of expectations; risk of impairment of goodwill; offline store expansion falls short of expectations; inventory backlog; industry competition intensifies; e-commerce growth slows or traffic costs rise; and improper cost control.