occurrences
The company published its annual report for 2022 and the report for the first quarter of 2023.
Comment:
Multiple internal and external factors put pressure on results in '22
In 2022, the company achieved operating income of 2,917 million yuan, a year-on-year decrease of 21.01%; realized net profit attributable to the parent company - 742 million yuan, an increase of 18.56% over the previous year; net profit after deducting non-attributable to the parent company was 759 million yuan, an increase of 17.05% over the previous year. The company's sales/management/R&D expenses ratio in 2022 was 1.53%/6.74%/4.18%, respectively, and -0.06/+1.73/+0.81 pct respectively over the previous year. The company's gross margin in 2022 was 5.66%, down 7.34pct from the previous year; the net profit margin of the parent was -25.45%, down 0.76pct from the previous year.
The main reasons for the decline in profits are: (1) the pressure on domestic cosmetics consumption compounded by the saturation of overseas demand; (2) new production capacity was implemented in '21, and depreciation and amortization expenses increased year-on-year in '22; (3) rising commodity prices and supply chain tension; and (4) the calculation of goodwill impairment preparations amounting to 453 million yuan. 2023Q1 achieved operating income of 397 million yuan, a decrease of 42.22% over the previous year, achieved net profit attributable to the parent company of 479.202 million yuan, an increase of 21.69% over the previous year, and achieved net profit of -497.191 million yuan after deducting non-attributable net profit of -497.191 million yuan, a decrease of 17.85% over the previous year. The gross margin of the 2023Q1 company was 2.51%, down 2.78 pct from the previous year; the net profit margin of the parent company was -12.07%, down 3.16 pct from the previous year. The decline in revenue was mainly due to the release of the atomic company Qingsong Chemical.
The divestment of the turpentine business was completed in 23Q1. The cosmetics business focusing on cosmetics and big consumption achieved revenue of 2,090 billion yuan in 2022, down 16.72% from the previous year; gross profit margin was 4.92%, down 5.52 percentage points from the previous year. The turpentine deep processing business achieved revenue of 82,800 yuan, a year-on-year decrease of 30.09%; gross profit margin was 7.54%, a year-on-year decrease of 10.91 percentage points. 23M1 has completed the transfer of 100% of the shares of Qingsong Chemical and Hong Kong Longsheng, and divested the turpentine deep processing business. Qingsong Chemical announced in 23Q1.
Investment advice and profit forecasting
The company is a domestic cosmetics ODM leader, leading the industry in R&D strength and product innovation capabilities. Since the third quarter of '21, revenue and profits have been under short-term pressure due to multiple internal and external factors such as fluctuations in raw material prices, implementation of new industry regulations, and expansion of employment and production capacity. Considering the impact of Qingsong Chemical's statement in Q1, we expect the company to achieve revenue of 26.31/28.59/32.15 billion yuan respectively in 2023-2025, achieve net profit of 0.96/123/142 million yuan, and EPS of 0.19/0.24/0.27 yuan respectively, corresponding to PE31/24/21x, and maintain the “increase in holdings” rating.
Risk warning
The risk of fluctuations in raw material prices, the risk of fluctuations in market demand in the cosmetics business, and the risk that customer expansion falls short of expectations.