On 2021-11-01, Liu Zhangming of Tianfeng Securities Co., Ltd. studied the baby-friendly room and released the research report "Q3 performance is under pressure under the impact of declining fertility and repeated epidemics, waiting for the external environment to improve." this report gives a buy rating to the baby-friendly room. the current share price is 19.81 yuan.

Baby friendly Room (603214)
Event: baby-friendly Room released its quarterly report for 2021. The revenue in the first three quarters of 2021 was 1.654 billion yuan / + 2.71%, and the net profit of returning to the mother was 34 million yuan /-47.51%, of which Q3 realized revenue of 512 million yuan /-0.41% in a single quarter, and the net profit of returning to the mother was-13 million yuan /-165.84%, deducting the net profit of non-return to the mother of-23 million yuan /-370.60%.
Revenue side: from a quarterly point of view, the company's 2021Q1/Q2/Q3 revenue is 543 million / 599 million / 512 million yuan, with a year-on-year change of + 4.64%, 3.76% and 0.41%. The year-on-year decline in revenue in the third quarter is mainly affected by the continuous decline in the total rate of women of childbearing age and the size of the birth population in recent years, and the same store data are under pressure. In terms of stores, by the end of the reporting period, the company operated a total of 298 stores in the first three quarters, including 28 new stores, 20 closed stores and 13 stores to be opened. In terms of categories, the income of milk powder in the first three quarters was 821 million yuan / + 3.09%, that of supplies was 345 million yuan /-4.14%, that of cotton spinning was 152 million yuan / + 9.85%, that of food was 133 million yuan / + 1.49%, that of toys was 58 million yuan /-5.00%, and that of baby touching services was 11 million yuan / + 50.95%.
Gross margin: affected by the decline in store gross margin and changes in income structure, Q3 has declined. The company's gross profit margin in the first three quarters was 30.65%, unchanged from the same period last year; of which 2021Q1/Q2/Q3 gross profit margin was 28.94%, 33.22% and 29.47%, year-on-year change + 1.31pcts/+0.81pcts/-2.27pcts. The revenue structure such as the decline of store sales gross profit margin and the increase in the proportion of online sales affect the company's quarterly gross profit margin by more than 2 points. Expense side: during the period, the expense rate increased compared with the same period last year due to the decline in store sales, accounting standards, subsidies and so on. The sales / management / financial expense rates for the first three quarters of the company were 23.77%, 4.39% and 1.64%, respectively, with a year-on-year change of + 1.31pcts/+0.47pcts/+1.50pcts. Among them: the rate of 12021Q3 sales expenses was 26.54%, an increase of 2.87pcts over the same period last year, due to the decline in store sales and subsidies compared with the same period last year. The rate of 22021Q3 management expenses was 5.53%, an increase of 1.02pcts over the same period last year, due to a decline in store sales and subsidies compared with the same period last year. The financial expense rate of 32021Q3 was 2.08%, an increase of 1.85pcts over the same period last year, mainly due to the impact of new accounting standards on the recognition of lease interest.
Profit end: the profit changed from profit to loss in the current quarter, mainly due to the joint action of store sales, gross profit margin, income structure, subsidy reduction, accounting standards and other factors under the background of fertility decline and the impact of the epidemic. In the first three quarters of 2021, the net profit from home was 34 million yuan, down 47.51% from the same period last year, and the net interest rate was 2.03%, down 1.95pcts from the same period last year; the net profit from non-return was 4 million yuan, down 88.96% from the same period last year, and 0.26% from the same period last year, with a decrease in 2.18pcts compared with the same period last year. Of this total, 2021Q3 realized net profit of-13 million yuan, down 165.84% from the same period last year, and deducted non-return net profit of-23 million yuan, down 370.60% from the same period last year.
Investment suggestion: the leader of maternal and infant retail in East China, relying on lean management and existing channels to carry out omni-channel + brand strategy, is expected to continue to expand in stores, online, sales structure, etc.; in the short term, along with the repair of the epidemic, the company's single-store sales are expected to benefit from it. In the long run, diversified consumption, product segmentation and category expansion drive a continuous increase in per capita expenditure, social attention to fertility or potentially conducive to the long-term and healthy development of the industry. Due to the decline in fertility and the higher-than-expected online process, the net profit in 2021-22 is expected to be 0.4 trillion 0.92 / 119 million yuan respectively. It is suggested that we should continue to pay attention to it.
Risk hint: the birth is not as expected, the improvement of the same store is not as expected, and the number of shop closures is increasing.

A total of 17 agencies have rated the stock in the last 90 days, including 8 buy ratings, 8 overweight ratings and 1 neutral rating; the average institutional target price in the past 90 days is 26.35; according to the Securities Star valuation analysis tool, the Baby Room (603214) good company has a rating of 2.5 stars, a good price rating of 3 stars and a comprehensive valuation rating of 3 stars.