The Zhitong Finance app learned that CICC released a research report stating that it maintained the “outperform the industry” rating of Virginie (02199). Considering that inventory removal for some overseas brands is not over yet and that it will take time for terminal consumption to recover, FY24/FY25 profit forecasts were lowered by 20.9% and 5.9% to 2.22 and HK$376 million, respectively. Considering the recent downturn in the industry valuation center, the target price was lowered by 12.8% to HK$3. The company's 1HFY24 revenue was HK$3,545 million, or -23.2% year-on-year; net profit was HK$107 million, -65.9% yoy. The performance fell short of the bank's previous expectations, mainly due to the long inventory removal cycle of overseas brand customers. In addition, the interim dividend is HK3.5 cents per share, with a dividend rate of 40%.

The main views of CICC are as follows:

There was a month-on-month improvement in all categories, and underwear performance was relatively steady.

1HFY24's underwear business, which accounted for 62.4% of revenue, performed steadily, -10.3% year-on-year to HK$2,211 billion, +12.8% month-on-month. Sports products, which accounted for 28% of the company's total revenue, had poor overall performance due to varying inventory removal progress from downstream customers. Revenue was -33% year-on-year to HK$994 million, +4.4% month-on-month. The revenue of consumer electronics accessories, bras and other molded products was -37.9% and -36.7%, respectively, to HK$165 million, +41.7% and 23% month-on-month, respectively. The company took the initiative to shrink its footwear business, with revenue of -77% year-on-year to HK$45 million. The company said it had stopped issuing orders in October.

Weimi China is developing rapidly as planned, and its products are entering the international market to collaborate in IDM business.

Vimi China benefited from the promotion of differentiated products. 1HFY24's revenue was +51% year over year to HK$883 million, accounting for net profit to reverse losses year on year and profit of HK$22 million. At the 2023 Double Eleven Shopping Festival, Vimi's Tmall sales were +61% year-on-year to 155 million yuan. Underwear sales ranked third on Tmall. Some of the products launched by Vimi China were also favored by Vimi America. They were listed in the US in the second half of the year, effectively driving the development of IDM's business.

Short-term profits are under pressure due to increased restructuring costs and financial expenses.

The gross margin of 1HFY24 was -1.5ppt to 28.8% year-on-year, benefiting from an increase in Vietnam's production efficiency of +1.3ppt over the previous year. In addition, the financial expense ratio increased by +1.2ppt to 4.3% year on year due to interest rates, and the relocation of domestic factories brought about about HK$90 million in restructuring costs. Overall, the company's net profit margin was -3.8ppt to 3% year-on-year.

Development trends

The company expects 2HFY24 orders to continue to improve month-on-month. Among them, international customers in the underwear business are recovering steadily, bras and other accessories remain in line with underwear business trends; sports bras and leggings have improved moderately, and sportswear is expected to grow rapidly as a new brand; the VR business in consumer electronics will pick up slightly due to product iterations, and the computer peripherals business will remain steady. FY25 With the transformation of R&D and prototyping results, the company expects orders and capacity utilization rates to be greatly improved.

Risk warning: The recovery in customer orders and the increase in production capacity utilization fell short of expectations, and expenses such as factory moving subsidies exceeded expectations.