Summary of 361 Degrees Third Quarter 2024 Earnings Call Company Overview - The call is regarding 361 Degrees, a company operating in the sportswear industry, specifically focusing on athletic footwear and apparel [1]. Key Points and Arguments - The call was hosted by the Investor Relations representative, Nina, and included key executives such as the Chairman, Chen Yonglin, and CFO, Richard Kwong [1]. Additional Important Content - The meeting commenced with all participants in a muted state, indicating a formal setting for the discussion [1].

Investment Rating - The report initiates coverage on 361 Degrees with a "Buy" rating and a target price of HKD 5.32 [2] Core Views - 361 Degrees is the fourth-largest domestic sportswear brand in China, focusing on "professionalism, youthfulness, and internationalization" [2] - The company is expected to achieve net profits of RMB 1.11 billion, RMB 1.28 billion, and RMB 1.48 billion for 2024E, 2025E, and 2026E, respectively, with EPS of RMB 0.53, RMB 0.62, and RMB 0.72 [2] - The company's valuation is attractive, with a 2024E PE of 7.42x and PB of 0.78x [2] Key Highlights Highlight 1: Leveraging Cost-Effective Consumption Trends - 75.9% of 361 Degrees' domestic stores are located in third-tier and below markets, differentiating its positioning from competitors [3] - The brand's core price range on Tmall is below RMB 200, compared to RMB 200-400 for competitors, emphasizing cost-effectiveness [3] - The company focuses on technology-driven product innovation, particularly in running, basketball, and sports lifestyle categories [3] Highlight 2: E-commerce Driving High Growth - E-commerce revenue CAGR from 2020 to 2023 was 43.2%, contributing significantly to growth [4] - Online revenue accounted for 24.3% of total revenue in 1H24, with room for further growth through platforms like Douyin and Kuaishou [4] - 87.3% of online products are exclusive to e-commerce, helping maintain price stability and create hit products [4] Highlight 3: Children's Wear as a Second Growth Curve - The children's wear market is growing, with sports-related children's wear penetration increasing [5] - 361 Degrees' children's business accounted for 23.2% of revenue in 2023, with a 5-year CAGR of 19.1%, significantly higher than the company's overall growth rate [5] - The company has room to expand its store count and improve store efficiency in the children's wear segment [5] Financial Forecasts and Valuation - Revenue is expected to grow from RMB 8.42 billion in 2023 to RMB 12.94 billion in 2026E, with a CAGR of 15.4% [6] - Net profit is projected to increase from RMB 961 million in 2023 to RMB 1.48 billion in 2026E, with a CAGR of 15.5% [6] - ROE is expected to rise from 10.05% in 2023 to 12.32% in 2026E, reflecting improving profitability [6] Industry Trends - The sportswear industry is benefiting from increasing health consciousness and the trend of casual and sporty attire [19] - Domestic brands are gaining market share, with 361 Degrees' market share increasing by 0.7 percentage points to 3.4% from 2020 to 2023 [29] - The children's wear market is expanding, with sports-related children's wear penetration expected to continue rising [5] Company Strategy - 361 Degrees focuses on low-tier markets and cost-effective products, with 75.9% of stores located in third-tier and below cities [3] - The company is enhancing its e-commerce capabilities, with online revenue expected to grow further through new platforms [4] - The children's wear segment is a key growth driver, with plans to expand store count and improve store efficiency [5]

Financial Performance - Revenue increased from RMB 4,311.5 million to RMB 5,141.3 million, representing a growth of 19.2%[4] - Profit attributable to equity holders rose from RMB 703.6 million to RMB 789.7 million, an increase of 12.2%[5] - Gross profit margin decreased slightly to 41.3% from 41.7%, while operating profit margin fell to 20.6% from 23.0%[4] - Gross profit for the first half of 2024 was RMB 2,125.0 million, an 18.3% increase from RMB 1,796.5 million in the same period of 2023, with a slight decline in gross margin to 41.3%[105] - Operating profit increased to RMB 1,060,445 thousand, compared to RMB 992,781 thousand in the previous year, reflecting a growth of 6.8%[121] - Net profit for the period was RMB 821,709 thousand, a rise of 7.3% from RMB 766,245 thousand in the prior year[123] - Total revenue for the first half of 2024 reached RMB 5,141.3 million, a 19.2% increase compared to RMB 4,311.5 million in the same period of 2023[100] Asset and Liability Management - Non-current assets decreased by 17.3% to RMB 1,198.1 million, while current assets increased by 5.1% to RMB 12,206.8 million[6] - The debt ratio increased to 2.5% from 2.2%[6] - The company's total liabilities decreased to RMB 3,399,366 as of June 30, 2024, from RMB 3,088,042 as of December 31, 2023, reflecting a decrease of approximately 10.1%[124] - The company's total assets as of June 30, 2024, reached RMB 12,206,791, compared to RMB 11,617,332 as of December 31, 2023, indicating an increase of approximately 5.1%[124] Research and Development - The company plans to increase R&D activities in the second half of 2024, expecting a profit margin increase of 3% to 4%[5] - R&D expenses accounted for 2.8% of the group's total revenue, focusing on professional sports areas such as running and basketball[86] - The group has obtained 562 patents and has 857 technical personnel involved in product development, including 428 for footwear and 318 for apparel[89] Marketing and Brand Development - The company aims to enhance consumer recognition of its children's brand by increasing the proportion of professional sports products[17] - The company aims to deepen its brand positioning of "professionalization, youthfulness, and internationalization" in the second half of 2024[21] - The company aims to enhance its brand value through strategic sponsorships and a focus on consumer trends in marketing[41] - The company aims to strengthen its global influence by actively participating in international sports events and enhancing international cooperation[30] Sales and Distribution - The company declared an interim dividend of HKD 0.165 per share, equivalent to RMB 0.154, with a payout ratio of 40.3%[13] - During the 618 shopping festival, the company's e-commerce platform sales increased by 94% year-on-year, ranking third among domestic brands[20] - The company's online sales channel experienced a growth rate of 99%, leading the industry in year-on-year growth[20] - E-commerce business generated revenue of RMB 1,252.7 million, representing about 24.4% of total revenue, with a year-on-year growth of 16.1%[77] Operational Efficiency - Inventory turnover days improved to 82 days from 93 days, while trade receivables turnover days decreased slightly to 148 days[6] - The average inventory turnover period decreased to 85 days from 93 days in the previous year, indicating improved inventory management[120] - The average trade payables turnover period decreased by 21 days to 89 days, reflecting improved cash flow management[120] Market Trends and Consumer Behavior - The demand for sports apparel is evolving, with consumers increasingly valuing both functionality and fashion, leading to a blurred line between daily wear and sportswear[26] - There is a growing demand for high-end and professional sports equipment as consumer awareness of sports-related purchases matures[30] - The children's outdoor sports market is experiencing explosive growth due to increased parental demand for quality sports gear and diverse product needs[30] Corporate Governance and Compliance - The company maintained compliance with the corporate governance code during the six months ended June 30, 2024[191] - The audit committee has reviewed the unaudited interim financial statements for the six months ending June 30, 2024, and believes they comply with relevant accounting standards and regulations[200] Strategic Partnerships and Sponsorships - The company is a global gold partner for the Zhengkai Marathon in China from 2022 to 2024[52] - The company is the main sponsor for the Liverpool Half Marathon in the UK for 2023 to 2024[52] - The company has collaborated with the Asian Olympic Council and the World Swimming Federation as official partners[53] - The company has engaged several sports ambassadors with notable achievements in marathons, enhancing brand visibility[54][55][57]

[Table_MainInfo] 公司研究/纺织与服装/服装与奢侈品 证券研究报告 [Table_InvestInfo] 投资评级 优于大市 维持 股票数据 | --- | --- | |--------------------------------------------------------------|-----------| | [Table_StockInfo]08 月 19 日收盘价（港元） | 3.72 | | 52 周股价波动（港元） | 3.09-5.06 | | 总股本（百万股） | 2068 | | 总市值（百万港元） | 7692 | | 相关研究 | | | [Table_ReportInfo] 《23H1 童装、线上销售表现亮眼，品牌力持续 | | | 提升》2023.8.20 | | | 《23Q2 流水双位数增长，亚运预热助力品牌提 | | | 升专业影响力》2023.7.21 | | | 《23Q1 流水高基数下双位数增长，看好全年业 | | | 绩增长》2023.4.18 | | | 市场表现 | | [Table_QuoteInfo] | --- | --- | -- ...

证券研究报告·海外公司点评·纺织及服饰(HS) 买入（维持） 361 度（01361.HK） 24H1 业绩点评：深耕大众市场优化运营，业绩增 长持续稳健 2024 年 08 月 19 日 证券分析师 汤军 执业证书：S0600517050001 021-60199793 tangj@dwzq.com.cn 证券分析师 赵艺原 执业证书：S0600522090003 zhaoyy@dwzq.com.cn | --- | --- | --- | --- | --- | --- | |----------------------------|--------|--------|----------|----------|----------| | [Table_EPS] 盈利预测与估值 | 2022A | 2023A | 2024E | 2025E | 2026E | | 营业总收入（百万元） | 7085 | 8518 | 10028 | 11609 | 13397 | | 同比(%) | 17.61 | 20.24 | 17.72 | 15.77 | 15.40 | | 归母净利润（百万元） | 747.12 ...

Investment Rating - The report maintains a "Buy" rating for 361 Degrees (01361) [1] Core Views - 361 Degrees achieved strong growth in its children's wear business, driven by professional, health-tech, and fashionable products, with sales volume increasing by 26.0% YoY [1] - The company's e-commerce business also performed well, with revenue increasing by 16.1% YoY to 1.25 billion RMB, accounting for 24.4% of total revenue [1] - During the "618" shopping festival, the company's e-commerce sales surged by 94%, ranking third among domestic brands, with sales volume growth of 99%, the highest in the industry [1] - Overseas revenue declined due to weak demand in some South American countries [1] - The company is focusing on professional sports, youth, and internationalization, with 562 patents as of June 30, 2024, and plans to increase R&D spending to 3%-4% of revenue in H2 2024 [1] Financial Performance - 24H1 revenue reached 5.14 billion RMB, up 19.2% YoY, with net profit attributable to shareholders of 790 million RMB, up 12.2% YoY [1] - Gross margin was 41.3%, down 0.4 pct YoY, while net profit margin was 15.4%, down 0.9 pct YoY [1] - Basic EPS was 38.2 RMB cents, up 12.4% YoY, with a dividend of 16.5 HK cents and a payout ratio of 40.3% [1] - Advertising and promotional expenses accounted for 10.5% of revenue, up 1.7 pct YoY, while employee costs accounted for 6.2%, down 0.9 pct YoY [1] - R&D expenses accounted for 2.8% of revenue, down 0.4 pct YoY [1] Product Breakdown - Adult footwear revenue was 2.28 billion RMB, up 20.1% YoY, accounting for 44.4% of total revenue, with a gross margin of 42.8%, down 0.7 pct YoY [1] - Adult apparel revenue was 1.58 billion RMB, up 15.7% YoY, accounting for 30.7% of total revenue, with a gross margin of 40.2%, up 0.1 pct YoY [1] - Children's products revenue was 1.13 billion RMB, up 24.2% YoY, accounting for 22.0% of total revenue, with a gross margin of 41.7%, down 0.7 pct YoY [1] Store Network - As of the end of the period, the company had 2,550 children's sales outlets in mainland China, with 45.2% located in the north [1] - The company had 5,740 stores in mainland China, with 46.6% located in the north [1] Future Outlook - The company is expected to achieve revenue of 10.09 billion RMB, 11.69 billion RMB, and 13.45 billion RMB in 2024, 2025, and 2026, respectively [1] - Net profit attributable to shareholders is expected to be 1.11 billion RMB, 1.29 billion RMB, and 1.53 billion RMB in 2024, 2025, and 2026, respectively [1] - EPS is expected to be 0.54 RMB, 0.62 RMB, and 0.74 RMB in 2024, 2025, and 2026, respectively [1]

Investment Rating - The report maintains a "Buy" rating for 361 Degrees (01361) [3] Core Views - 361 Degrees demonstrated resilience in demand despite a weak retail environment, with H1 2024 revenue growing 19.2% YoY to RMB 5.14 billion, meeting expectations [3] - Net profit attributable to shareholders increased 12.2% YoY to RMB 790 million, slightly below expectations due to a slight decline in gross margin and other income [3] - The company proposed an interim dividend of HKD 0.165 per share, representing a payout ratio of 40% [3] - Both adult and children's apparel segments showed strong growth, with children's apparel revenue up 24.2% YoY to RMB 1.13 billion, accounting for 22.0% of total revenue [3] - Offline channels improved in quality and efficiency, with offline revenue growing 20% YoY to RMB 3.89 billion, and e-commerce revenue increasing 16.1% YoY to RMB 1.25 billion [4] - The company's inventory turnover accelerated, with inventory turnover days decreasing by 1 day YoY to 85 days [4] - The report slightly lowered profit forecasts for 2024-2026 due to weak market recovery, with expected net profits of RMB 1.09 billion, RMB 1.25 billion, and RMB 1.42 billion, respectively [5] Financial Performance - H1 2024 gross margin decreased by 0.4 percentage points to 41.3%, while net profit margin attributable to shareholders fell by 0.9 percentage points to 15.4% [4] - Sales expense ratio increased by 0.2 percentage points to 17.8%, while management expense ratio decreased by 0.5 percentage points to 6.1% [4] - Operating cash flow was RMB 160 million, with cash and cash equivalents declining 4% to RMB 3.41 billion [4] - Accounts receivable turnover days decreased by 1 day YoY to 148 days, while accounts payable turnover days decreased by 21 days YoY to 89 days [4] Growth Drivers - Adult apparel revenue grew 18.1% YoY to RMB 3.94 billion, driven by volume growth, with footwear and apparel sales increasing 20.1% and 15.7%, respectively [3] - Children's apparel revenue growth was driven by a 26% increase in sales volume, despite a 1.4% decline in average wholesale price [3] - The company expanded its offline store network, with adult and children's stores increasing by 98 and 102, respectively, compared to H1 2023 [4] - The proportion of 9th-generation adult stores and 4th-generation children's stores increased to 74% and 89%, respectively, driving higher store efficiency [4] Future Outlook - The company is expected to continue its growth trajectory, with revenue forecasts for 2024-2026 at RMB 9.78 billion, RMB 11.13 billion, and RMB 12.50 billion, respectively [6] - Net profit attributable to shareholders is projected to grow at a CAGR of 13% from 2024 to 2026, reaching RMB 1.42 billion by 2026 [6] - The company's focus on product and brand upgrades, along with optimized channel operations, positions it for faster-than-industry growth in the long term [5]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1][15][19] Core Views - The company achieved a revenue of 5.141 billion HKD in H1 2024, representing a year-on-year increase of 19.2%, and a net profit of 790 million HKD, up 12.2% year-on-year. The interim dividend declared is 16.5 HKD cents per share, with a payout ratio of 40.3% [7][15] - The company maintains its profit forecast, projecting net profits of 1.14 billion, 1.35 billion, and 1.58 billion HKD for 2024-2026, with corresponding PE ratios of 5.8, 4.9, and 4.2 times [15] - The company focuses on enhancing its product matrix in running and basketball, expanding its store efficiency, and enriching brand resources through marketing, while experiencing rapid growth in e-commerce and children's clothing [15] Summary by Sections Revenue Growth and Performance - In H1 2024, the company reported a revenue of 5.141 billion HKD, with significant contributions from children's clothing and e-commerce, which saw terminal sales growth of 20-25% in Q1 and 30-35% in Q2 [7][9] - Revenue breakdown for H1 2024 includes footwear at 2.283 billion HKD (+20.1%), apparel at 1.576 billion HKD (+15.7%), accessories at 78 million HKD (+13.0%), and children's clothing at 1.132 billion HKD (+24.2%) [9][10] Profitability and Margins - The gross margin for H1 2024 was 41.3%, a slight decrease of 0.4 percentage points, primarily due to lower margins in footwear and children's clothing [10][12] - The operating profit margin was 20.6%, down 2.4 percentage points, influenced by a decrease in other income and an increase in accounts receivable impairment provisions [13][14] Operational Efficiency - As of June 2024, inventory amounted to 1.456 billion HKD, with a turnover period of 85 days, reflecting effective retail management [14] - The company reported a net cash flow from operations of 160 million HKD, with cash and cash equivalents totaling 3.41 billion HKD [14] Store Expansion and Market Presence - The company operates 7,037 stores globally, with 5,740 in mainland China, and has seen a steady increase in the proportion of its ninth-generation stores [10][11] - The children's clothing segment has 2,550 stores, with a similar increase in average store size [10][11]

361 度（1361 HK） | 2024 年 8 月 14 日 香港股市 | 消费 | 体育服饰 361 度(1361 HK) 收入 / 利润逆市双位数增长 受益于高性价比策略，收入同比增长 19.2% 361 度 1H24 整体收入 51.4 亿元（人民币，下同），同比增长 19.2%，其中主品牌实现收 入 39.4 亿，同比增长 18.1%，儿童品牌收入 11.3 亿，同比增长 24.2%。上半年公司产品 均价维持稳定，收入上升由销量带动，证明公司专注高性价比产品的策略在近期消费表 现疲弱的环境中行之有效。上半年销售更多高性价比的产品，导致鞋类产品的毛利率略 微下降至 42.8%，但在其他品类毛利率坚挺作用下，公司整体毛利率 41.5%，同比跌 0.2 百分点。期内公司实现净利润 7.9 亿，同比提升 12.2%，净利润率 15.4%。公司宣布派发 中期股息每股 0.165 港元，同比增长 154%，派息率为 40.3%，高于市场预期。 广告投入加大；门店拓展保持零售增长 按运动分类，跑步产品占收入 52%，期内录得同比 40%以上增长；篮球产品占收入 8%， 增长率约 20%；女性健身产品虽然只占收入 ...

Investment Rating - The report does not provide a specific investment rating for the company [4]. Core Insights - The company achieved a revenue growth of 19.2% year-on-year, reaching RMB 5.14 billion in the first half of 2024, driven by a high cost-performance strategy [2][3]. - The main brand contributed RMB 3.94 billion, growing 18.1%, while the children's brand saw a 24.2% increase to RMB 1.13 billion [2]. - The overall gross margin slightly decreased to 41.5%, with a net profit of RMB 790 million, reflecting a 12.2% increase year-on-year [2]. - The company plans to maintain a dividend payout ratio of 40.3%, with an interim dividend of HKD 0.165 per share, a 154% increase from the previous year [2][4]. Financial Performance - Revenue for 2023 was RMB 8.423 billion, with a projected growth rate of 21.0% [8]. - The net profit for 2023 was RMB 961 million, with a growth rate of 28.7% [8]. - The company maintains a target for net profit growth of 10%-12% for 2024, with a forecasted net profit of RMB 1.07 billion [4][8]. Sales and Marketing Strategy - The company increased advertising expenses by 42.4% to RMB 540 million, focusing on enhancing store image and sponsoring sports events [3]. - E-commerce sales accounted for 24.4% of total revenue, growing 16.1% year-on-year, while offline retail sales also saw over 10% growth [3][4]. Product Performance - Running products represented 52% of total revenue, with over 40% growth, while basketball products grew approximately 20% [3]. - The company plans to launch a co-branded series with a notable athlete to boost basketball shoe sales in the fourth quarter [4]. Market Positioning - The current stock price is HKD 3.47, with a market capitalization of HKD 7.175 billion [5]. - The company is trading at a price-to-earnings ratio of 6.1 times for FY24E, indicating an attractive valuation [4][9].