21 Mar 2023

The company reported a 8.7% YoY decline in topline to Rmb3,086m in FY22, as i) some stores were temporarily suspended during the year due to pandemic, and ii) Lilang provided Rmb83.7m rebates to its distributors during the year; in which the decline was partially offset by the increase in sales in 1Q22, driven by: i) about 40% of stores has converted to the consignment model thus far, which delayed the timing of sales recognition from the end of 2021 to 2022; and ii) satisfactory off-season inventory clearance. GPM was up by 4.1ppt YoY to 46.0% mainly due to the inventory provision of Rmb120m recorded in FY21 versus the write-back of inventory provision of Rmb22.3m in FY22. Excluding the effect of inventory provision and rebate, GPM still achieved a 1.2ppt YoY increase to 45.5%. Mgmt. expects a further improvement in GPM in FY23 as the off-season inventory, which has a lower ASP, has already been cleared out in FY22, while its online channel is gradually evolving from inventory clearance to a platform for launching higher ASP new products. S&D ratio was up from 23.5% in FY21 to 25.6% in FY22 as a result of a 17% YoY increase in advertising and renovation expenses to Rmb402m, partially offset by a 27% YoY drop in operating expenses from self-operated stores to Rmb229m. Admin cost ratio was slightly up by 0.7ppt YoY to 5.8%, mainly due to the increase in trade receivable provision to Rmb12.7m in 2022 (FY21: Rmb6.0m). As a result, FY22 NP decreased by 4.3% YoY to Rmb448m with NPM increased by 0.6ppt YoY to 14.5%.

CROSBY Research – China Lilang (1234 HK): Expects at least 10% retail sales growth in FY23