Good afternoon, and welcome to the Investor call for Stella International Holdings Limited 2023 fourth quarter update. With us today is Mr. Andy Tam, Group Chief Financial Officer, and Ms. Macy Leung, Head of Investor Relations. Kindly know that the webinar is being recorded. We will be taking voice questions from the audience following the management's presentation. If you want to ask a question, please signal by pressing the Raise Hand at the bottom of your console at any time. Once again, please press the Raise Hand button to be placed in the Q&A queue. I now invite Macy to begin today's presentation. Macy, can you go ahead? Macy, are you there? Sorry, we can't hear you. Macy, I think you're muted. Sorry, guys. We'll just wait for them to get back online. Macy, are you there?a Hi, guys. Can you hear me? Yeah, that's it. Thanks, Andy. Okay. Let me, let me just log on this one. Okay, great. Let me start. I, I logged on a device, so, Macy, why don't you come over and start off. Good afternoon, everyone. Thanks for joining the group call for Stella's operation update for the fourth quarter, 2023. This is Macy, Stella's IR. With me on the call is our CFO, Andy. We will take your questions after we give the operational update. For the three months end 31 December 2023, the group's unaudited consolidated revenue increased by about 13.5% to $389.5 million. For the twelve months end 31 December 2023, the group's unaudited consolidated revenue decreased by approximately 8.5% to $1,492.7 million. For our manufacturing business, the revenue for the fourth quarter saw an increase of 13.5% to $380.3 million, while the revenue for the full year 2023 decreased by 8.9% to $1,454.3 million. Our shipment volume for the fourth quarter increased by about 10.9% year-on-year, as our differentiated high-quality footwear products continued to deliver strong sell-through for our customers. Shipment volumes for the full year decreased by about 12.5% year-on-year, due to the reshaping of the group's product and customer mix, as part of our three-year plan, as well as destocking by some customers during the year. The ASP increased by 2.1% to $28.8, and 4.2% to $29.7, respectively, for the fourth quarter and for the full year, which are mostly driven by the changes to the group's customer mix and product mix. This, along with the enhanced gross profit margin, better production efficiency and cost controls, supported our operating margin during the periods. The group remains confident of reaching the medium-term goals under its three-year plan of achieving an operating margin of 10% and low teens annualized growth rates on the profits after tax during the three-year period. So this ends the presentation today, and we are delighted to answer any questions you may have. Thank you, Macy. We are now ready to answer your questions. If you would like to ask a question, please press the Raise Hand button to be placed in the queue. When your name is called out, please unmute yourself and ask your question. We'll now take our first question from Carlton Lai. Carlton Lai, please ask your question. Thank you. Sure. Thanks. Thanks for taking my question. Hi, Andy and Macy. Just a couple quick ones. For volumes, it does look like 4Q was a bit of a upside surprise. Can you just talk about why, like, if there's any specific reasons why? And we'd expect a even higher OPM than expected because of the probably operating leverage and also, you know, probably a weaker sportswear mix, and so that'll probably push it even higher. And then number two is, can you just comment a bit about the just the overall kind of consumption downgrade, not just in China, but just kind of globally, you know, the cautious sentiment. Does that kinda counteract our, you know, our strategy for, you know, kind of shooting for high-end and luxury? Does that, you know, are we seeing any changes in terms of our, you know, customers' positioning, perhaps a bit more in towards the kind of middle, middle-end segment? And then just lastly, can you just also comment a bit about if you're seeing any disruptions from kind of the Red Sea logistics costs, you know, rising right now, and if there's any customers that are requesting, you know, orders being pushed up front or just, you know, air freight. So I'll stop here. Great. Thank you, Carlton. Let me just, there's an echo. Let's fix the other machine real quick. Okay, great. Now, we fixed the echo. So on, number one, on a volume side, we, as you know, we were guiding for the full year down 14%, okay? We did obviously, based on that, down only 12%, slightly better than expected. Now, this comes from, you know, actually our customer. A few of the customers requested, shipments that were meant for January to be shipped, in December, okay? Especially last couple weeks, of December. The reason why they did that was they ran out of products to sell at the store. And, you know, it's selected customer, it's not everybody. It's just a matter of, you know, their product that we made for them were a hot seller. And, you know, all three of them basically had a really strong sell-through during the, I guess, holiday season. So they actually ran out of products. So you go to some of the stores, they would only have one pair of shoes on display, but actually had no inventory in the back. So we had to ship them orders that were whatever finished goods we had that were finished in December, but we weren't meant to be shipping earlier, and but were really meant to be shipped in January. We shipped them earlier than expected. Now, so that, you know, obviously a few implications. One, is that obviously it makes our number better than expected, in full year 2024, which will have an impact on the bottom line. 'Cause if you think about it, that incremental orders has basically purely the gross profit of that, those incremental orders drops almost basically all the way down to profit after tax, after you've taken the tax rate, okay? There's not a lot of operating costs related to those, 'cause all those operating costs we would incur typically would be in, booked in 2024. So, it's definitely much higher into the net margin incrementally, which sounds great for 2023, but obviously makes the base for 2023 higher, for our 2024 comparison, okay? So, we shipped some volume earlier than expected. It's gonna definitely make our 2023 number higher than expected, which, you know, of course, we'll be more than happy to pay the appropriate dividend based on that, 'cause we don't change our dividend policy for that. But that's, you know, I think really the strength of, I would say, the customers or the particular products that we make for them. It is not a, I would say, going to your next question, a general, I would say, categorization for the global consumption market and also luxury. As we all know, I think, the market has been weak, and luxury has, I would say, be weaker. I was starting at least weakening than, say, earlier in the year, obviously. And, you know, we didn't expect 2023 to be a great retail market. We don't expect 2024 to be a retail market. That was the assumption we went into when we did our budget in the first place for next year. So we actually, this is what we're seeing now is actually within our expectation what the market looks like. It's not a surprise to us. And enough of our customers have told us that, you know, they thought 2023 was weak, 2024, you know, is not better. But if anything, our customers will still continue to still continue placing orders with us. A lot of them are just some new ramp-ups, you know, in terms of ramping up their product they just launched. And like, you know, it goes to show, even in the bad retail market, when you launch a hit product, you know, it will sell through. And so it's great for our customers, and we're more than happy to support that. In terms of, you know, so far, we don't see any big impact for 2024, in terms of even within this dynamic. I think across the various category, while luxury sounds weaker than normal, than before, it is, but it's within our expectations. Again, there's new launches that we have with some customers, and also some ramp-ups, for next year for some customers. So we're pretty full for... Actually, we're pretty full, definitely for non- sports side of the business. No change there. In terms of disruption to Red Sea logistics, that only really goes for the, I would say, European route, the EU route. Right now, and obviously, we ship most of our Q4 products already, to you know, to Europe, and that's mainly, you know, more luxury and fashion related. Second half is more luxury and fashion related. So, so far, we haven't any disruption, and we haven't got any requests from our customers, to say, produce earlier or whatnot, to have to anticipate a longer journey, around bypassing the Red Sea logistics side. But given we're an FOB manufacturer, we don't really deal with the logistic and freight forwarding in this case. So for us, not much impact. Normally, if something like this happens, they might ask us to produce earlier and ship them to them earlier so they can schedule the boat earlier, but we haven't gotten that, any of that request yet. Got it. Thanks. Just one quick follow-up. Regarding sports side, you know, because I think your largest customer was also a bit, you know, a bit more cautious on the commentary for 2024. So, have we seen any... Or is this within expectations, or has this changed our outlook in any way? No, it's within expectations. You know, no, no change. It's pretty much what they told us before, and no, not much changes. Not better, not worse for 2024. Got it. Great. Thanks. Thank you, Carlton. The next question comes from Alice Cai of Citi. Alice, you may go ahead. Thank you. Okay. Thank you. Hi, Andy. Congratulations on the Q4 performance. Very nice. Observing the current results, the retail has sell impressive performance. I'm aware that the company is intensify the management in retail. I would like to inquire about the company's plan regarding the retail sector, and specifically, when is it anticipated that the retail division can be closed or phased out? Thank you. Thanks, Alice. You know, since I've joined in 2020, when we looked, we started developing a strategy plan for 2025, so it's been almost five years. Almost four years for me, but by the time I get to 2025, it's almost six years for me to be at the company. One of the focus is not retail. And we wanna focus on footwear manufacturing, number one. Number two, if anything, we're incubate our handbag accessory business. Number three was really not about reinvesting or allocating capital retail. So as you see over the last few years, you see there's a lot more, I would say, shutdown-related losses on the retail segment. It's not like you can exit right away. I wish I can, but you, you can't exactly do that. Take some time. So I think by end of this 2023, I think by the time we, you know, when we talk about in 2024, in the annual results in March, you know, we'll talk more about, you know, what we've done. But, you know, really it is about shutting down, when we have shut down most of the Asian business, pretty much everything in Europe, wholesale and even direct stores. And only things we might have is, like, in China, in our JV that we have. Given we have a JV partner, we can't, as also owning 40%, you can't exit right away. But that's something we've been actually minimizing the footprint, even in the China side. So overall, you know, hopefully, you know, we can get to a point where, you know, we might still have standalone our brand and product just for marketing purpose but not really a retail segment, and it doesn't really take any of our management time. It's not a focus right now for our business. Okay. Thank you. I have another question. Could you please give us guidance about 2024? Thank you. For 2024, I think right now, I mean, honestly, we just had a board meeting today on our budget, so it's still fresh. You know, there are still some comments. I won't go into too much detail in terms of guidance yet, but one thing I would say is that, on a non-sports side of the business, our factories are full. We are fully booked for 2024. Issue isn't, I would say, people will ask: "Hey, what if the retail market downturn, do you see any cancellation or delay?" The issue we have in 2024 is too many orders and not enough capacity. So we actually turned down some of the order that we're— that some of our customers were hoping to build up with us. We just don't have capacity for them. So we had to have some really tough conversation with our customers, this past few months, to see how much capacity to get. And obviously, if, you know, there are some movements for 2024, we might reallocate any capacity that becomes idle to another customer that we couldn't give capacity for. So we don't see that as a really big problem in 2024 on the non-sports side. And there's also gonna be very minimal, I would say, increase in capacity. There will be some ramp up in the solo factory in Indonesia, because we want to ramp up that capacity to free up Vietnam to do more. At the same time, though, the Indonesian factory, when we move some brands there, we gotta make sure the quality, the operation is exactly up to our standards. So that is very important for the first half. And we are sending some of the most senior people there, and now we have been there, actually, in Indonesia. So we're gonna make sure that everything's goes smoothly during that time in the first half. On the sports side, you know, our largest customer obviously had a decrease in volume in 2023. But, you know, if anything, I think the inventory has improved. And, you know, like we talked about, I think in ending December, our utilization is back to 80%, and that's probably exact, still, no expectation changes. You know, it's still exactly what we've been told that is gonna happen. So overall, there will be some volume increase, because of our sports customer. But on the non-sports side, there will actually be technically an output volume decrease, not because the factory is not full, it's because we're doing slightly more luxury and high-end fashion, and we reallocate that capacity that, the limited capacity we have, to more higher-margin customer. So that's why you have an offset of volume decrease from that side. So net-net, you know, you might be relatively flat or up, you know, probably mid-single digit on the volume side. I imagine, because of the sports customer increasing as a share, that will typically drag our ASP as group average lower. But overall, we still pretty committed to growing our profit after tax in the low teens, even for next year. I don't think there's a lot of risk to that, from my perspective right now. Sorry, I have a follow-up question. Could we expect to see a stronger performance on the casual segment moving this year due to the consumption downgrade? Thank you. You know, funny thing is, in 2023, there is inventory that we knew about back in Q4 2022. The casual customer were probably the first ones to, I would say, hit the alarm bell. And they would have had really frank conversation with us about, you know, "Hey, there's gonna be inventory across all segments, in Q4 Christmas season 2022." So they were actually pretty ahead of the game in terms of, discounting, before everyone else does, so their discounting hurt so much, and actually cleared the inventory earlier. At this point in time, they're actually pretty healthy going into 2024. The funny thing is that they actually wanna increase production or orders placement with us, but we actually just don't have capacity. So until our Bangladesh factory comes online end of 2024, we actually don't have incremental capacity for them. And we had to actually take some capacity away, from them, from that segment, to offer to other customers. 'Cause we were kind of balancing capacity and kind of, you know, at the same time, customer relationships and things like that. So we had to reallocate some capacity. But overall, actually, the casual segment is actually relatively healthy, at least, the customers we work with. Okay, thank you so much. Thank you, Alice. We'll take the next question from Kai Sheng of Haitong Securities. You may ask your question. Thank you. Hi. Thank you for taking my question. This is Kai from Haitong. My first question [audio distortion] mentioned that actually we have some customers who are running out of stock, and they want some early delivery in December, and maybe now maybe it's from luxury or casual sportswear. My second question is actually about the ASP trends in 2024, if we can have some details. Thank you. Yeah. In terms of category, it's mainly luxury and kind of the high-end fashion. They're more— the new customers that we are working with, and the product they had, you know, I can say either, one, they didn't order enough or they didn't expect the reception is that positive. Or number two— number one is they underestimated, but number two is, even if they ask for more, we probably didn't have capacity for them in 2023, to be honest, 'cause they're a new customer, and they wanna slowly ramp, and we totally understand that. But so their product sold through really well. So it's just, really I think it's more specific product than anything else. In terms of ASP, there's an offsetting effect, okay? On the sports side, the ASP is gonna be lower, okay? Sorry, yeah, it is gonna be lower within the segment itself, but also because that mix will increase, so there is a higher mix increase of lower ASP product. That will overall obviously put a drag on ASP. Offsetting by, as we do more luxury and fashion on the non-sports side, that's gonna actually raise ASPs. Right now, when we look at the two, offset is basically pretty much flat, at this point for 2024 on a group basis. Okay, I understand. Thank you. I have a follow-up question. Because we have seen a weaker momentum in terms of luxury, do we still have— develop maybe some other luxury customers so as to offset the impact? Well, I would like to win a lot more luxury customer. All I know is that, you know, in a fashion show in Paris in September, there were... Every single brand had, I would say, fashion product, fashion sneaker product, on display on a runway. We don't do business with most of them. So most likely, they're doing business, so they're making those products on their own. So I would love to win more customers, and there's still a pretty big opportunity for us to do that. Okay, thank you. Thank you. We'll take the next question from Darren Yuen of Chartwell Capital. Please go ahead. Hey, Andy. I've got a few questions for you. I think, obviously by now, we've had discussions with most of our customers about the outlook, for this year. But I just wanted to ask, you know, if in case something does happen, you know, how much can our customers kind of deviate from the initial budget? I mean, I know that we maybe have some other brands, that could take over that capacity, but I was just curious how that normally works. Is there, like, a certain percentage of their orders that they have to stick to no matter what? Yeah, that's my first question. Great. On that topic, it's. The conversation very dependent on, say, per brand, you know, how big they are, you know, how we work with them and stuff like that. But in general, we're looking at our first half, our order book is, obviously, people already booked Q1. Or so when you book a PO, that's confirmed. So you cancel, you yeah pay, you gotta pay for it. Second half, I'm sorry, second quarter, so it'll be pretty much not completely full yet, but already getting there, but it's more like a timing. So, people order probably, you know, anywhere from three to six months ahead of time or putting confirmed purchase order. But before, at the beginning of the year, when we do the budget, of course, we ask everyone: How much capacity do you need? And, you know, we come to a point where last year and also this year, we have limited capacity growth on the non-sports side. So basically, our conversation this year and last year is similar, where if, you know, you got committed capacity, there might be some charges if you don't fulfill it. But to be honest, we had so many orders that we couldn't fulfill that, you know, if you cancel, we just ship it to someone else. If looking at luxury and fashion, both of those, production comes in the fall and winter. When you think about what you see now, right now, you've already seen the pre-fall fashion show. Now you're seeing fall/winter fashion show. The brands are putting out the products onto the market in display, saying that these products are coming out in the fall. I would say very unlikely they will not have those products in the store. Because there's kind of no point in doing all this marketing, and then you actually don't launch the product when you can make money. So you already spent all the marketing costs. And the product cost, to be honest, is not the biggest cost for a luxury fashion brand, the marketing costs is. So I imagine there's probably not a lot of a deviation, to be honest, from, for the fall/winter side, especially for luxury and fashion. Okay. And following up on luxury high-end fashion, do we still kind of expect those orders to be more backloaded going into 2024? Because I know, I, I think for 2023, that was the case. In general, they are more back-end loaded. Just the cycle of the, you know, luxury and fashion houses launches. Okay, gotcha. And then wanted to check on our CapEx outlook for 2024. Are we still at around $100 million-$120 million? And how is that- Yeah, we're still finalizing our CapEx. I want... I would like to have them to spend on the higher end, $120 million. So that means there's more progress on our, you know, a faster progress for our factories. But that's still about the same, about the same range that we're looking at for 2024. Okay. And how is that being allocated? Is it, I mean, Bangladesh should be pretty much done, right? So is it being invested in Indonesia or elsewhere? Yeah, obviously, the Indonesian factory that we talked about will be a big consumption, that probably half of that CapEx. And the remaining half is basically, like, maintenance in Bangladesh. Okay, gotcha. And then, because we kind of have a larger CapEx this year, would we mind, you know, dipping into our cash reserves a bit if we need to, to pay our dividend? [crosstalk] Our cash is pretty high anyway, so. Yeah, the CapEx, the CapEx, that we're supposed or cash that we're supposed to use for both the, Indonesian project and also Bangladesh, is already on the balance sheet. Okay, and you-we will report, we report, 2023, you'll see cash that's excess for this, savings that we've been holding for the CapEx. It's just the CapEx. So it's not, we don't need any cash flow from operations to fund this additional, CapEx, the cash flow event. Okay. And then finally, as we kind of optimize our production layout, should we expect any material change in our tax rate going down the line? It's not — a tax rate shouldn't be going down. If anything, it should be going up. Eventually, I imagine around the world, everyone will be paying 15%, at least, for the— under the GMT. Now, the status of that is not, you know, as quickly as we thought. We actually thought by now everybody would be 15%, but given the wars and given U.S. has not really participated, that has been kind of put on hold, I would say. Some countries have done a 15%, adopted the 15% GMT, but at the end of the day, they're not the U.S. The U.S. is most important. But you see tax rate in any jurisdiction slightly go up, and I, I can't imagine anyone to be, have any tax entity or structure that doesn't pay 15%, at least 15%, at the end of the day. So, next year, we'll probably think, we'll probably see about 13%, tax rate. I don't know when it'll get to 15%. It really depends on, honestly, how fast GMT gets rolled out across the world. Okay, gotcha. Thanks. That's it for me for now. Thank you, Darren. As a reminder, if you'd like to ask a question, please press the Raise Hand button on your console. We'll take a follow-up question from Alice Cai of Citi. Please go ahead. Hi, Andy. I have a follow-on question on the CapEx just mentioned. You mentioned that half of the CapEx will be put into the new factory in Indonesia. I want to ask, when is the new factory expected to put into operation? 2025? Thank you. Yeah. The new sports factory, they're just starting building construction on a clear land. The schedule is probably the beginning of 2026. That's kind of current schedule, but that's still a few years away. I'm not sure if there's any delay or move forward, but I think at least at beginning of 2026 for that factory to come online. So $60 million put into this new factory and another $60 million, 2025? Thank you. Yeah, that sounds about right. I think our CapEx in 2024 and 2025 will be about the same range, $100 million-$120 million, basically. Okay, thank you. Thank you, Alice. We'll take the next question from [Scott Tsung of Ready Tsung] Group. Please go ahead. [Foreign language] Sorry. Can you, can you ask in English? I want to ask the tech— Scott, why don't you ask in Mandarin? I'll respond in English, but Macy will help me translate. [Foreign language] Okay, so the handbag side, we're incubating our handbag business. We have a facility in Vietnam, we have a facility in Philippines. Right now, this remaining two years, 2024, 2025, we are making sure the quality for the factory is up to the standard that, and, that we approve, that until we start cross-selling that services, and production capacity to our luxury and high-end fashion. We want to make sure the quality is good, and, before we actually, step up on terms of, that. But we do, it is improving, improving a lot, quite a bit in 2023, and we expect that to continue to improve in 2024. In terms of plan for bigger handbag and accessory factory, that will probably come in the next, three-year plan, post 2025. So we'll talk more about that when we get that, that stage. [Foreign language] The handbag accessory factory is already making money. It, it made money. Actually, I assume the first year we took over, we were breakeven. It made a little bit of money. And last year, we probably make about $2 million in profit after tax. So, it's already making money, and if anything, it will be better over time. [Foreing language] Thank you. Just a reminder for anyone who would like to ask a question, please press the Raise Hand button at the bottom of your console. We'll take the next question from Ricky Chen. Please go ahead. Hi, Andy and Macy. Thank you for taking my question. I just want to follow up on the 2024 guidance. Correct me if I'm wrong, but I think you mentioned that the volume will be flat or up to mid-single digit growth, and ASP, that's like flat or something, and you also mentioned a low teens after-tax profit. So I just wonder, how would our GP margin and OP margin look like, especially given that you mentioned that we're having a higher base for 2023? Thank you. Okay, so the high why... I think why we talk about volume is flat, because I almost have almost a 1 million pair of shoes that was supposed to ship this month to last month, okay? Otherwise, it wouldn't be flat. But actually, we're not looking really flat, but it's really more, you know, really low single digits to maybe like mid-single digit at this point in the volume. Not because the really, the 1 million pair extra pair of shoes supposed to go in January. So that creates a high base, okay? But even within, with that, we still are guiding profit after tax in the low teens, because there's obviously gross margin improvement, but also efficiency in our kind of overall structure that we've been continuing doing. And there's a lot of different things that we operation we're doing. Our R&D cost is gonna go up, but it's gonna go up in a way where dollars spent per every time the luxury and fashion where most of R&D has been done much more efficient, okay? So some of that volume and scale once our new customer launched the product a couple of years, next year it's gonna be bigger, but then the product development cost gets spread out over more volume. So we're actually gonna have some operating leverage from that. And you expect that once the customer starts to mature, you get that kind of operating leverage, and they do more volumes per se. And also, you know, just internally, we've been... Since I think Steve and I have taken over, we're really looking at the internal structure and removing a lot of silos and consolidating the teams and making sure we have a center of excellence in business development, account management, and order planning, also supply chain management and QAQC, so control, which is all centralized now instead of individual factory. So from there, we able to really rationalize a lot of people and actually really improve the process and quality. But now we're actually moving to the next step, where we're making the job more efficient by being more digital, okay? So some of that initiative have actually been in place. And now it's just like, now you start to see, I guess, the benefit from that. So that's why, you know, our operating margin will improve next year, definitely for sure, as a part of, because the gross margin by customer mix and product, but also some of these initiatives we've been doing. All right, great. Thanks, Andy. Thank you, Ricky. As a reminder, you can press the Raise Hand function to ask a question. It appears there are no more questions. Andy or Macy, do you have any final comments? Okay. Well, great. This is only a Q4 update. We are still looking to close our numbers for, and also go through our audit process for our other. So, when we talk about March annual results, we'll talk about more margins in detail and of course, a much clearer outlook for 2024. By that time, our order book is probably almost filled for up to Q3, so, we'll have more discussion at that time. So thank you very much, guys. Okay. Thank you very much. Thank you for joining us today. Please have a pleasant evening. You may now disconnect.