Orient Securities released a research report saying that it maintained Taobu (06110)'s “increased holdings” rating. According to the latest operating data, it basically maintained its profit forecast for the next three years. The predicted earnings per share for FY24-26 were 0.38, 0.44, and 0.51 yuan respectively, maintaining the PE valuation 18 times in FY24, and the target price of HK$7.49. The sales volume of the company's FY24Q3 retail and wholesale business increased by a low of 10%-20% year on year. It is also expected that the second half of the fiscal year will increase efforts to open stores to match market demand.

The report's main points are as follows:

The company's FY24Q3 (September to November 2023) retail and wholesale business sales increased by a low of 10%-20% year on year.

As of November 30, the gross sales area of directly-managed stores increased by 0.5% month-on-month and decreased by 1.7% year-on-year. By brand, brands with a faster overall revenue growth rate than 23Q3 (10%-20% lower range) have a higher weighted average growth rate in double digits, and brands with a slower overall growth rate than 23Q3. The weighted average growth rate is in medium units (if short-term factors are excluded to achieve low double-digit growth), increasing month-on-month compared to the situation in FY24H1.

Indicators such as inventory-sales ratio and retail discounts improved year over year.

By the end of November, the company's inventory sales ratio was slightly less than 4 times, a significant improvement over the previous year. The bank believes that the increase in the sell-out rate of new products is the main reason. At the same time, partner brands are gradually restarting marketing activities, such as the Nike High School Basketball League and the warm-up for the Sanlitun basketball tournament, etc., which are also expected to contribute positively to overall sales. Furthermore, with the increase in the share of new product revenue, the discount rate of FY24Q3 continued to improve year on year, and the trend and magnitude are basically the same as FY24H1.

The opening of stores is expected to accelerate in the second half of the year.

FY24Q3, the company's store closure situation has slowed down in both year-on-year and month-on-month latitude. It is expected that the second half of the fiscal year will increase its efforts to open stores to match market demand. Benefiting from the restart of cooperative brand marketing activities and the acceleration of net store openings in the second half of the year, the bank expects the company's revenue growth rate to continue to exceed the industry average. On the other hand, considering the company's healthier inventory levels and improving product sell-out rate, it is expected that profitability will continue to recover in the second half of the year. In terms of dividend yield, according to wind data, FY2021-2023 was 9.4%, 8.1%, and 5.8% respectively, and the FY24H1 medium-term dividend rate increased to 74.2% year on year, up from 70.4% in the same period last year. The bank believes that this reflects the company's strong ability to generate cash and a healthy and steady operating state, and is also an important factor in increasing the company's investment value in the current market environment.

Risk warning: Adidas and Nike business growth fluctuations, sportswear inventory progress, etc.