ELLASSAY(SH:603808) Guoxin Securities·2024-11-08 08:10Investment Rating - The investment rating for the company is "Neutral" with a target price range of 6.90 to 7.40 RMB, reflecting a downward adjustment from previous estimates [5][12][14]. Core Insights - The company's domestic business showed a stable growth of 5.3%, while overseas operations continued to decline, negatively impacting overall performance. The third-quarter revenue increased by 1.6% year-on-year to 700 million RMB, but the net profit attributable to shareholders fell by 238.5% to -40 million RMB [1][3]. - The company is focusing on brand strength and controlling product discounts, resulting in a gross margin increase of 0.5 percentage points. However, the sales expense ratio rose by 6.9 percentage points to 52.5%, and management expenses increased by 1.0 percentage point to 10.1% due to high fixed costs in overseas regions and the opening of new domestic stores [1][3]. - The company plans to accelerate adjustments in its overseas business to mitigate performance drag, particularly for the IRO brand, which has been underperforming due to macroeconomic uncertainties [2][12]. Summary by Sections Financial Performance - In Q3, the company reported a revenue of 700 million RMB, a year-on-year increase of 1.6%, while the net profit attributable to shareholders was -40 million RMB, a decline of 238.5% [1][3]. - The domestic business grew by 5.3%, but overseas sales continued to decline, leading to overall performance issues [1][2]. Brand Performance - The main brand, Geli Si, maintained stable revenue, while three emerging brands (SP, LAUREL, IRO) showed significant growth rates of 32%, 9%, and 8% respectively. However, IRO's overall revenue decreased by 17% due to overseas business struggles [2][3]. Online and Offline Channels - Online sales grew impressively by 48% to 110 million RMB, while offline sales dropped by 8%. The company is actively closing inefficient stores and opening more effective direct-operated stores [2][3]. Profitability Forecast - The profit forecast for 2024-2026 has been adjusted, with expected net profits of 50 million, 170 million, and 210 million RMB respectively, reflecting a year-on-year change of -48.7%, +221.4%, and +22.4% [3][10][12]. - The gross margin is expected to decline due to increased fixed costs in overseas operations, with projections of 67.3%, 68.0%, and 68.3% for the next three years [10][12]. Cost Structure - The sales expense ratio is projected to be 50.0%, 47.5%, and 47.0% for the next three years, reflecting adjustments in response to high fixed costs and store openings [10][12]. - Asset impairment losses are expected to increase due to accelerated adjustments in overseas operations, with projections of -2.5% for 2024 [10][12].