Core Viewpoint - Zheshang Securities maintains a "Buy" rating for Yuanyuan Group (00551), highlighting that despite a decline in shipment volume due to a high base, the company has improved its profit margins through product mix optimization and strong growth in online channels [1] Performance Overview - For the first three quarters of 2025, the company reported revenues of $6.02 billion, a year-on-year decrease of 1.0%, and a net profit of $280 million, down 16.0%. Manufacturing revenue was $4.23 billion, up 2.3%, while retail revenue was $1.79 billion, down 7.9% [2] - In Q3 2025, the company achieved revenues of $1.96 billion, a year-on-year decline of 5.0%, with a net profit of $110 million, down 27.0%. Manufacturing revenue in Q3 was $1.43 billion, down 4.5% [2] Manufacturing Business Insights - In the first three quarters of 2025, manufacturing revenue reached $4.23 billion, with shipment volume at 189 million pairs (up 1.3%) and an average selling price (ASP) of $20.88 (up 3.2%). In Q3, manufacturing revenue was $1.43 billion, with shipment volume at 62.7 million pairs (down 5.3%) and an ASP of $21.4 (up 3.4%) [3] - Revenue by region showed a 5.4% increase in the U.S. (28.5% share), 11.7% in Europe (27.7% share), a 25.9% decline in mainland China (13.4% share), and a 9.2% increase in other regions (30.4% share) [3] Profitability and Efficiency - The manufacturing capacity utilization rate was 93%, up 1 percentage point year-on-year, with a gross margin of 18.3% (down 1.3 percentage points). The SG&A expense ratio was 10.2% (down 0.2 percentage points) [4] - In Q3 2025, the gross margin improved to 19.4% (down 1.2 percentage points year-on-year, up 1.6 percentage points quarter-on-quarter), driven by enhanced production efficiency and product mix optimization [4] Retail Business Performance - Retail revenue for the first three quarters was $1.79 billion, down 7.9%, affected by a weak retail environment and intensified competition. Same-store sales declined by double digits, with 3,338 direct-operated stores (down 3.5%) [5] - Online sales grew by 13% (33% share), with live-streaming revenue more than doubling year-on-year. In Q3, retail revenue was $520 million, down 6.3%, showing a narrowing decline [5] - The gross margin for retail was 33.5% (down 0.5 percentage points), with old inventory accounting for 9% and inventory turnover days at 161 days (up 9 days) [5]

Investment Rating - The report assigns an "Outperform" rating to the company, with a target price of 9.83 RMB based on a projected 16x PE for 2025 [4][20]. Core Insights - The company experienced a revenue growth of 9.9% year-on-year in Q3 2025, with net profit attributable to shareholders increasing by 50.1% [4][20]. - The growth in revenue is attributed to strong online channel performance and improvements in offline sales, with new product launches contributing to overall revenue growth [4][20]. - The gross profit margin for Q3 2025 was 48.1%, up 3.8 percentage points year-on-year, driven by higher margins from online and direct sales channels [4][20]. - The company’s inventory levels continued to decline, with a year-on-year decrease of 13.7% in Q3 2025, indicating improved inventory health [4][20]. Financial Summary - The projected financials for the company show a net profit attributable to shareholders of 0.51 billion RMB in 2025, increasing to 0.63 billion RMB by 2027 [4][20]. - The company’s revenue is expected to be 4.806 billion RMB in 2025, with a growth rate of 5.4% compared to the previous year [3][4]. - The net profit margin for Q3 2025 was reported at 12.8%, reflecting a 3.4 percentage point increase year-on-year [4][20]. Sales and Expense Analysis - The report indicates that the sales, general and administrative expenses increased by 2.1% year-on-year, while management expenses remained well-controlled with a slight increase of 0.7% [4][20]. - The overall expenses increased by 1.9 percentage points year-on-year, primarily due to the growth in online sales and promotional activities for new products [4][20]. Inventory and Asset Quality - The company’s end inventory for Q3 2025 was reported at 1.04 billion RMB, down 13.7% year-on-year, indicating a focus on improving inventory management [4][20]. - The report highlights a reduction in asset impairment losses and credit losses, contributing positively to the net profit margin [4][20].