With The "Bet" Of Fosun, The Performance Of Urban Beauty Has Changed Greatly.

With regard to the capital operation of urban beauty (02298), investors may be most impressed by the May 2017 revival International (00656)'s wholly owned subsidiary, Fuxing REIT strategy. At that time, the urban beauty suffered a cut in net profit, and the cash flow was in a tight state. Fuxing shares not only brought a lot of money to the urban beauty, but the performance of the two sides also made the market see the hope of revitalizing the urban beauty.

As a matter of fact, from the perspective of the short-term stock price performance of the urban beauty after the merger of Fosun, the market should be recognized for this investment, and the performance of urban beauty in 2018 has also reached the requirements of the gambling agreement. Surprisingly, urban beauty announced its earnings in 2018, and the stock price continued to fall.

What is even more alarming is that in June 28, 2019, the city beauty suddenly released an earnings police announcement, announcing that the company expects that the consolidated profits of the company owners in the first half of 2019 should be no less than 80% year-on-year, and that the group's revenue is expected to decline by a high percentage. In July 2nd, there was no accident. The price of urban beauty fell 7.3% again, at HK $1.65, with a market value of HK $3 billion 712 million.

A lost thing is lost.

Why did the performance of urban beauty suddenly "change face"? According to observation, the company's financial performance in recent three years has already revealed some signals.

In 2015, the total number of urban beauties who implemented the "Wan Dian plan" reached 8058 stores (6937 stores, 1121 self operated), and grew into the leading market of China's underwear market. However, because of the aggressive strategy of expansion, the number of stores was saturated, the rate of store entry declined and the cost increased.

In 2016, the number of urban beauty stores decreased by 407 compared with the same period last year, and sales revenue decreased by 8.9%. The net profit of the company dropped by 55.19% as a result of a substantial increase in costs. In addition, the net cash earned by the company was converted into a net outflow of 6 million 930 thousand yuan from the net flow of 403 million yuan (the same below) in 2015. It can be said that at that time, the urban beauty wanted to make the performance grow on the track of growth, and the demand for capital was thirsty.

In May 2017, Fuxing's 11.18% stake in urban beauty was a great urgency for urban beauty. However, Fosun also made requests for the performance of urban beauty in the next two fiscal years, including urban beauty, which guaranteed that the annual income growth in 2017 and 2018 was no less than 3% and 6% respectively, or that the increase in 2018 was not less than 9.18% in 2016. The growth rate of net profit in 2017 and 2016 was not less than 20% and 15%, respectively, or that the net profit of the deduction was not less than 38%.

In 2017 and 2018, urban beauty realized revenue of 4 billion 542 million yuan and 5 billion 96 million yuan respectively, increasing by 0.67% and 12.2% respectively. Net profit of 317 million yuan and 380 million yuan increased by 31.01% and 19.75% respectively.

It can be said that the performance of the urban beauty can not promote the share price to rise further, nor will it fall or fall again. But in fact, the company has also paid some price in order to reach the gambling agreement. The main performance in the financial sector is the decline in gross margin, the increase in accounts receivable and the fluctuation of net cash flow from operating activities.

Specifically, the gross profit margin of urban beauty fell from 44.37% in 2016 to 41.67% in 2018; accounts receivable increased from 451 million yuan to 826 million yuan; deposit, prepaid accounts and other receivables increased from 503 million yuan to 790 million yuan; cash receipts from operating activities rose to a net inflow of 347 million yuan in 2017, but dropped rapidly to net 51 million yuan in 2018.

Regarding the decline in gross margin, the urban beauty released in the June 28th earnings police notice that it was mainly affected by the rising prices of raw materials used by the company, and the tightening of some suppliers' environmental regulations, resulting in an increase in the cost of raw materials for their supply, resulting in an increase in raw material costs. In addition, cleaning up old inventories and offering higher discount to competitors are also the cause of the decline in gross margins.

Aiming at "95 years" and shining the second spring?

In order to improve the future operation results, urban beauty released six measures in the Ying police announcements, such as hiring new chief executives, hiring new brand spokesmen, increasing product research and development, expanding sales channels and potential mergers and acquisitions.

In the short term, urban beauty aims at selling young products to consumers. Perhaps it can make quantitative changes in the company's performance in the short run.

In June 21st, the city beauty announced that "95 after" young actor Guan Xiaotong was appointed as the spokesperson of "CosmoLady" brand underwear and home clothes in China in June 1, 2019. The service period is 2 years.

First, the beauty of the city is positioned to be fashionable, energetic and youthful. Secondly, in recent years, urban beauty has become more and more younger in product design, which is more in line with the aesthetic standards of young people.

Over time, young consumer groups have grown into mainstream consumer groups. Studies show that online channel consumers account for more than 5 of consumers under 30 years old, and female consumers dominate. This trend is expected to become a good opportunity for urban beauty to recover their lost territory. Since the beginning of the layout of e-commerce channels in 2014, the urban beauty has reached 712 million yuan by the end of 2018, an increase of 31.12% compared with the same period last year. The proportion of electricity supplier income has reached 13.97% compared to that of 2015. The change in the income structure of urban beauty channels is catering to the trend of online consumption growth and the aging of online consumer groups.

I hope that the urban beauty can get rid of the predicament of earnings decline and return to the track of growth as soon as possible. After all, the urban beauty of HK $9 has left investors for too long.