14 Aug 2024
1H23 revenue increased by 19.2% YoY to Rmb5.14bn, with core brand retail value up by high-teens/+10% YoY and that of 361º Kids up by +20-25%/+mid-teens YoY in 1Q/2Q. GPM edged down by 0.4ppt YoY to 41.3%, as i) GPM of 361º Kids declined by 0.7ppt YoY to 41.7% due to product mix change with launching of new products with competitive AWP, and ii) adult footwear GPM down 0.7ppt as new products that carry higher AWP have a thinner margin in order to be more competitive. GPM of footwear/ apparel/ accessories/ shoe soles were -0.7/ +0.1/ +4.2/ +1.6 ppt YoY to 42.8%/ 40.2%/ 35.5%/ 22.1%. Selling expense surged by 21% YoY to Rmb916m (selling expense ratio – 1H24: 17.8%, 1H23: 17.6%) as A&P expenses were up by 42% YoY with more online activities held to promote the brand and further decoration and design cost were incurred for the expansion in the number of ninth generation stores, while admin expense was up by 9% YoY to Rmb311m due to a 20% increase in staff costs and a 3% YoY increase in R&D to Rmb143m. R&D ratio went down from 3.2% in 1H23 to only 2.8% in 1H24 as a result, but the ratio is expected to go back to the normal 3%-4% range in FY24 with more R&D activities scheduled in 2H24. Finance cost was down by 12% YoY to Rmb8.2m with less bank loans. Effective tax rate was slightly down to 21.9% (1H23: 22.1%). As a result, NP surged by 12.2% YoY to Rmb790m, which accounted for 71% of our FY24 new estimates of Rmb1,107m.