Core Viewpoint - The financial performance of Kairun Co., Ltd. shows a significant increase in revenue and net profit, driven primarily by a strategic acquisition, yet the company's stock price has declined, indicating potential underlying issues in cash flow and inventory management [1][2][3]. Financial Performance - Kairun Co., Ltd. reported a revenue of 4.24 billion yuan for 2024, a year-on-year increase of 36.6%, and a net profit of 381 million yuan, soaring by 229.5% [2]. - In Q1 2025, the company achieved a revenue of 1.24 billion yuan, up 35.57%, and a net profit of 85 million yuan, an increase of 20.12% [2]. - The acquisition of Shanghai Jiale was a key driver of this performance, contributing 848 million yuan in revenue and 28 million yuan in net profit in just six months post-acquisition [3]. Acquisition Details - Kairun Co., Ltd. acquired a 15.9% stake in Shanghai Jiale for approximately 200 million yuan, raising its total ownership to 51.85% [2]. - The acquisition allowed Kairun to consolidate Shanghai Jiale's financials, which had previously been a long-term investment [2][3]. - Shanghai Jiale is a core supplier for major brands like Uniqlo, Adidas, and Puma, enhancing Kairun's customer base [2]. Operational Challenges - Despite the impressive growth figures, Kairun's original business growth was insufficient to support the over 200% increase in net profit without the acquisition [4]. - The company faces challenges in cash flow management, with accounts receivable rising by 77.57% to 1.05 billion yuan, significantly outpacing revenue growth [7][9]. - The increase in inventory also poses risks, with stock levels rising by 76.02% to 868 million yuan, leading to a 169% increase in inventory impairment losses [8][9]. Financial Health - Kairun's operating cash flow decreased by 47% year-on-year to 232 million yuan, resulting in a cash flow to net profit ratio of only 0.58, indicating potential liquidity issues [8][9]. - The company has a short-term debt structure, with current liabilities of 1.5 billion yuan against cash reserves of 901 million yuan, raising concerns about its ability to meet short-term obligations [9]. - The acquisition has resulted in a high goodwill of 330 million yuan on the balance sheet, which could be at risk of impairment if Shanghai Jiale does not perform as expected [9].

Investment Rating - The report gives a "Buy" rating for the company [4]. Core Views - The company is positioned as a leading manufacturer in the bag industry, leveraging both B2B and B2C business models to drive growth. The B2B segment includes partnerships with renowned brands like Nike and Uniqlo, while the B2C segment focuses on its own brands, "90 Points" and "Xiaomi" [2][8]. - The company anticipates significant revenue growth, with projections of 32.04% in 2024 and 29.82% in 2025, alongside a substantial increase in net profit [8][12]. Financial Forecasts - Revenue (in million yuan): - 2023A: 3104.90 - 2024E: 4099.86 - 2025E: 5322.46 - 2026E: 6099.15 - Revenue Growth Rate (%): - 2023A: 13.28 - 2024E: 32.04 - 2025E: 29.82 - 2026E: 14.59 - Net Profit (in million yuan): - 2023A: 115.62 - 2024E: 390.46 - 2025E: 372.71 - 2026E: 452.66 - EPS (in yuan): - 2024E: 1.63 - 2025E: 1.55 - 2026E: 1.89 - PE Ratio: - 2024E: 13.96 - 2025E: 14.62 - 2026E: 12.04 [3][4][8]. Business Model and Strategy - The company operates under a dual business model, focusing on both B2B and B2C segments. The B2B segment includes OEM and ODM operations, while the B2C segment emphasizes direct sales through its own brands [12][48]. - The company has successfully diversified its operations, expanding from traditional IT bag manufacturing to include sports and leisure bags, as well as garment manufacturing [22][51]. Market Overview - The domestic bag market is experiencing a recovery, with a retail scale of 2349.2 billion yuan in 2023, reflecting a growth of 12.60% compared to 2022. The international market also shows signs of recovery, with a retail scale of 1551.5 billion USD [35][40]. - The report highlights the potential for domestic brands to capture market share, as the current market is dominated by foreign luxury brands [40][41]. Management and Governance - The company's ownership structure is stable, with the founder holding 51.23% of the shares, ensuring strong control and strategic direction [24]. - The management team is experienced, with backgrounds in leading IT companies, which enhances operational efficiency and competitive advantage [24]. Conclusion - The report indicates a positive outlook for the company, driven by robust growth in both B2B and B2C segments, strategic partnerships, and a favorable market environment [2][8][12].