EB SECURITIES: Performance in the first half of the year shows steady growth, maintaining a "Buy" rating on 361 DEGREES (01361)

EB SECURITIES released a research report indicating that 361 DEGREES (01361) achieved steady performance in the first half of the year, with both adult and children's clothing businesses progressing equally. At the same time, the e-commerce channel continues to deepen, and overseas business is experiencing rapid growth. In the second half of the year, the company will continue to adhere to its positioning of professionalism, youthfulness, and internationalization to enhance brand influence. The company maintains its profit forecast for 2026, projecting a corresponding net profit attributable to the parent company of 1.49 billion, 1.67 billion, and 1.80 billion yuan, with EPS of 0.69, 0.77, and 0.83 yuan, respectively, and P/E ratios of 6, 5, and 5 times. The rating is maintained at "Buy." Event: 361 DEGREES announced its interim results for 2026. The company realized operating income of 6.16 billion yuan in the first half of 2026, a year-on-year increase of 8.0%, with a net profit attributable to the parent company of 930 million yuan, also up 8.0%, and an EPS of 0.44 yuan. It plans to distribute an interim cash dividend of 22.2 Hong Kong cents per share, with a dividend payout ratio of 45%. Regarding profit margin indicators, the company's gross profit margin in the first half of 2026 increased by 0.3 percentage points year-on-year to 41.8%. The operating profit margin decreased by 0.4 percentage points year-on-year to 19.5%, while the net profit margin attributable to the parent company held steady at 15.0%. In terms of retail sales, in Q1 to Q2 of 2026, the main brand of 361 DEGREES (offline channels) grew by approximately 10% year-on-year; childrens clothing (offline channels) also saw a year-on-year increase of approximately 10%; and e-commerce for 361 DEGREES grew by double digits/high single digits year-on-year. Key points from EB SECURITIES are as follows: In the first half of the year, revenues from adult and childrens clothing increased by 8.6% and 6.9% year-on-year, respectively, with online sales up 9.5% and offline sales up 7.3% year-on-year. By category, the revenue share (as a percentage of total revenue) in the first half of 2026 for adult clothing, children's clothing, and others (accessories and shoe sole sales) were 73.6%, 21.4%, and 5.0%, respectively, with year-on-year revenue increases of 8.6%, 6.9%, and 3.7%. For adults, revenue from footwear and clothing accounted for 44.2% and 29.4% of total revenue respectively, with year-on-year increases of 5.7% and 13.2%. For children's clothing, revenue from footwear and clothing represented 12.9% and 8.5%, with year-on-year increases of 11.7% and 0.5%. Additionally, overseas business performed excellently, with overseas sales increasing by over 80.0% year-on-year, and cross-border e-commerce sales growing by over 140.0% year-on-year. By channel, the revenue share for online and offline in the first half of 2026 was 32.3% and 67.7%, with year-on-year increases of 9.5% and 7.3%. In terms of offline channels, as of the end of June 2026, there were 5,076 sales outlets in mainland China ( down 318 from the beginning of the year) and 1,167 overseas (down 86 from the beginning of the year); there were 2,202 sales outlets for 361 DEGREES children in mainland China (down 162 from the beginning of the year); and a total of 188 specialty stores opened (up 61 from the beginning of the year), of which 187 are located in mainland China (152 for the main brand and 35 for children's specialty stores), and 1 in Cambodia. Gross profit margin improved, expense ratio remained stable, inventory decreased compared to the beginning of the year, and net operating cash flow increased. Gross Profit Margin: The gross profit margin in the first half of 2026 increased by 0.3 percentage points year-on-year to 41.8%. By category, the gross profit margins for adult clothing, children's clothing, and others in the first half of 2026 were 42.6%, 42.4%, and 26.1%, respectively, with year-on-year changes of +0.1, +0.8, and -0.3 percentage points. Expense Ratio: The expense ratio for the first half of 2026 was 24.1%, unchanged year-on-year, where the sales, administrative, and financial expense ratios were 17.5%, 6.6%, and 0.0%, respectively, with changes of -0.7, +0.8, and -0.1 percentage points year-on-year. The decline in the sales expense ratio was mainly due to reduced costs for sales personnel, reflecting improved operational efficiency; the rise in the administrative expense ratio was primarily due to increased R&D expenditure and charity donations compared to the previous year. Additionally, in the first half of 2026, advertising and promotional expenses, R&D expenses, and employee costs accounted for 9.5%, 2.9%, and 6.3% of revenues, with respective year-on-year changes of -0.6, +0.1, and -0.4 percentage points. Other financial indicators: 1) As of the end of June 2026, inventory was 1.96 billion yuan, a decrease of 5.2% compared to the beginning of the year; inventory turnover days were 102 days, 15 days less than 2025. 2) Accounts receivable and receivable notes at the end of June 2026 were 5.37 billion yuan, an increase of 13.4% from the beginning of the year; accounts receivable turnover days were 149 days, unchanged from 2025. 3) Net operating cash flow in the first half of 2026 was 610 million yuan, an increase of 16.7% year-on-year. Risk Warning: Continued weakness in domestic and overseas demand; abnormal weather affecting offline foot traffic; slowdown in e-commerce channel growth; improper expense control or investment effectiveness not meeting expectations; intensifying industry competition.