The net profit increased by over 55%, why did the stock price of GOODBABY INTL (01086) not rise but instead fall?

Performance thriving and net profit increasing by more than 55%, why is the stock price of the globally leading baby stroller and car safety seat brand GOODBABY INTL (01086) not rising but falling? It is understood that GOODBABY INTL recently announced a positive performance for 2024, expecting a net profit of about HK$325-375 million for the year 2024, compared to about HK$209 million for the same period in 2023, an increase of 55.5%-79.4% year-on-year. According to the disclosure, the main reason for the increase in net profit this time is the growth in gross profit, thanks to favorable brand benefit mix and improved production costs. However, the positive performance did not receive positive feedback from the stock price, as the stock price quickly fell after the announcement and closed down by 3.7% the next day. In fact, looking at a longer period, the company has seen ideal gains in the past six months, but the stock price is at a historical low, with a high level of trapped investors. In the past 8 years, the company has experienced 5 years of significant declines followed by a recovery in profitability and three years of moderate growth. With a PB ratio of 0.3 times, GOODBABY INTL is considered to be undervalued. Does the company have fundamental support and can its market value return to its previous high? Recovery in performance, continued improvement in profits GOODBABY INTL started with baby strollers and expanded into the children's car safety seat and non-durable goods markets. It owns three major strategic brands, Evenflo, Cybex, and gb, covering markets in China, Europe, and North America. The company's performance has fluctuated significantly in recent years, with a continuous decline in revenue in 2022-2023. However, it has intensified efforts to improve profitability, with revenue recovering in 2024 and profits continuing to optimize. According to the forecast, the full-year net profit is expected to increase by at least 55.5%. According to the previously released performance for the first three quarters of 2024, the company's core strategic brands Evenflo and Cybex both achieved growth, with revenues of HK$1.775 billion and HK$5.785 billion respectively, representing growth of 7.4% and 21.2% respectively. The revenue shares were 27.3% and 51%, driving a 9.5% increase in total strategic brand revenue. However, gb brand revenue fell by 22.3%, with revenue share declining by 4.7 percentage points to 10.7%. This year's performance recovery is mainly driven by strong growth in the car safety seat brand and in the European, African, Middle Eastern, and Indian markets. However, the Asia-Pacific region, especially the Chinese market, is not performing well, leading to a decline in gb brand performance. The gb brand provides consumers with a full range of children's products, and the company attributed the decline to ongoing commercial scale adjustments and brand transformation in its key Chinese market. It expressed its commitment to further diversifying and enriching its global omnichannel distribution network. In recent years, the company has intensified sales promotion in its business strategy to support revenue growth, while also improving profit margins through optimizing brand portfolios to drive profit growth. In the first half of 2022-2024, its gross margins were 40.47%, 50.06%, and 52.58%, respectively, leading to an increase in shareholder net profit margins, which were 0.4%, 2.56%, and 4.42%, respectively. According to the forecast, the net profit margin for the full year of 2024 is expected to exceed 5%. In addition, the company has increased its sales expenses, with the expense ratio reaching 28.77% in the first half of 2024, an increase of 2.3 percentage points year-on-year, compared to an increase of 3.82 percentage points from 2022. It is worth noting that GOODBABY INTL has faced some challenges in 2024, with Xia Xin resigning as an executive director in February, followed by Qu Nan resigning in May. In July, the company announced a stock purchase rights plan, issuing 114 million stock purchase rights to eligible participants. The consecutive resignations of key decision-makers and the announcement of the stock purchase plan have raised doubts in the market, but the company's strong performance forecast indirectly demonstrates the stability of its governance. Financially healthy, but not favored by the market as a "hard chicken" GOODBABY INTL has a relatively healthy financial position, with a debt-to-equity ratio of 46.6% as of the first half of 2024 and an interest-bearing debt ratio of 19.76%. However, there is room for optimization in the debt structure, as most of the interest-bearing debts are short-term, with HK$2.105 billion in borrowings, likely related to the company's debt policy, having almost paid off long-term debts in 2023. The company has cash and cash equivalents of HK$804 million, along with short-term inventory and accounts receivable, indicating that the company has manageable debt pressures, and if cash flow is not smooth, it can adjust its long and short-term debt structure. In terms of business prospects, the core brands Evenflo and Cybex will continue to benefit from industry demand, especially in emerging markets. However, the core market for the gb brand is in China, with its main products representing durable baby products such as baby strollers. The marriage and birth rates in China have been declining in recent years, and the outlook is not optimistic. However, with penetration in emerging markets such as the Middle East and India, the gb brand has the potential to quickly expand overseas markets. Opinions from investment banks vary, but there are investment banks that are optimistic about the company, such as Zhongjin Research, which stated that GOODBABY INTL's multi-brand portfolio continues to grow, benefiting from the expansion of global markets. They estimate that the Cybex brand will continue its strong growth trend, while the Evenflo brand will achieve moderate growth, and the favorable brand mix will improve gross profit margins, significantly improving profitability. The bank stated that considering the release of performance driving valuation center upgrade, it raised its target price by 70% to HK$1.32. A good company is one that knows how to reward its shareholders. Based on its past record, GOODBABY INTL lacks market value management measures and investor feedback. Since its listing, it has not conducted any buyback operations, and even during the 5-year period of significant adjustments, the company has not paid dividends since 2018. With its current cash position, it has the ability to pay dividends and repurchase shares, but its "hard chicken" behavior has caused many value investors to hesitate. And thisAlso become a core reason for the sharp drop in the market value of GOODBABY INTL, although the company has risen for three consecutive years, with a cumulative rebound of 66.7%. However, the current price is 1.05 Hong Kong dollars, which is still down 81% compared to the high of 5.5 Hong Kong dollars in 2018. The company's fundamentals have improved, profitability continues to rise, and the current valuation is also very low. However, if dividend and repurchase policies are not implemented, it may not attract the attention of long-term and value investors to realize the return of valuation.Bonjour! Comment a va? Avez-vous pass une bonne journe?