Mengjie Home Textile: Brand Adjustment Gradually Ends And Gross Profit Margin Level Recovers

The company announced the results of the first three quarters of 2013: from January to September, the company realized an operating income of 930 million yuan, an increase of 15.2% over the same period of the previous year; Operating profit was 59 million yuan, up 11.6%; The total profit was 61 million yuan, up 11.8%; Net profit attributable to shareholders of listed companies was 50 million yuan, up 9.2%. In a single quarter, the company's Q3 revenue was 270 million yuan, up 12.4% year on year, and its net profit was 2.66 million yuan, up 1085.4% year on year. The company forecasts that the annual net profit will increase by 30-60%. The company's business improvement in the first three quarters met our expectations.

We believe that on the one hand, the company's base last year was low, especially in the third quarter, which was the low point of the whole year. On the other hand, the company increased its sales promotion frequency this year and supported e-commerce business. At the same time, it increased its new product development to be closer to the market, and its revenue growth was good. The main brand of the company, "Mengjie", has recovered well (accounting for 77%) and is the main growth force this year. It is expected to maintain a growth rate of more than 15% throughout the year. At the same time, the weakness of the company's high-end "Mei" brand has also improved since Q3 (accounting for 16.5%), and is expected to achieve double-digit growth throughout the year. Gross profit margin increased slightly. The gross profit rate of the company from January to September was 44.04%, a slight increase of 0.05% over the same period last year. The gross profit rate in Q3 single quarter increased by 0.28 percentage points, much better than the 1.9% decline in Q2 single quarter.

We judged that it was mainly the beginning of Q3, and the "Mei" brand adjustment that affected the gross margin gradually ended, and the gross margin level recovered. From January to September, the three expense rate of the company slightly increased by 0.33 percentage points, while in Q3, it decreased by 1.11 percentage points, mainly because the sales expense was well controlled. From January to September, the sales expense increased by 16% year on year, and the expense rate was 31.3%, a slight increase of 0.2 percentage points. In Q3, the sales expense in a single quarter only increased by 6%, and the expense rate decreased by 2.36 percentage points. From January to September, the administrative expenses increased by 18% year on year, and the expense rate was 5.03%, a slight increase of 0.03 percentage points, mainly due to the 43% increase in the administrative expenses in Q3 single quarter, and the 1.57 percentage points increase in the expense rate, mainly due to research and development expenses. We expect that Q4 cost improvement will be more obvious. Investment suggestion: maintain the early view. We believe that the risk release of the company in 2012 is sufficient, which is a clear target for performance improvement this year.

Maintain the "overweight" rating. Throughout the year, although the terminal has not recovered significantly at present, based on the consideration of the incremental contribution and low base of this year's great promotion of e-commerce, we expect the company's annual revenue growth of about 20% to remain unchanged, while this year's 55% net profit growth, which exceeds the expected exercise of power, mainly depends on the company's cost control effect. In the medium and long term, we believe that among the three leading home textiles, the company's main investment logic focuses on tapping the potential for performance improvement, and there is room for store quality improvement and cost control in the future. In recent years, the company has strengthened cost control, implemented comprehensive accounting, attached importance to the quality of new stores, and focused on sorting out the new stores in the past 2-3 years (1060 new stores in 10-12 years). The incentive conditions can be realized this year or deferred to next year, which indicates that the company attaches importance to profits and has achieved significant effect in controlling fees. After the formation of management inertia, it is expected that it will continue to reflect in the later period, and then it is judged that the pressure on exercise will be reduced. It is estimated that the EPS in 13-15 will be 0.51/0.60/0.71 yuan, and the corresponding valuations of the current stock prices are 30X/25X21X respectively.

Risk tip: The consumer terminal has not improved for a long time, and the cost control is lower than expected.