Incident: The company released its report for the third quarter of 2022. It achieved operating revenue of 1.02 billion yuan in the first three quarters of 2022, an increase of 39.2% over the previous year; it achieved net profit of 150 million yuan, a decrease of 27.8% over the previous year. 2022Q3 achieved revenue of 380 million yuan in a single quarter, an increase of 57.7% over the previous year; it achieved net profit of 40 million yuan to the mother, a decrease of 45.6% over the previous year.
The number of new categories of GMV has increased rapidly, and channel expansion is beginning to bear fruit. In the first three quarters of 2022, the company achieved a cumulative GMV of 15.65 billion yuan, a slight increase over the same period in 2021. Looking at channels, the Tmall platform showed a slowing growth trend, but it still occupies a central position in traffic. The OLAY, Opelay, and Maoge Ping brands that the company has collaborated deeply for many years have maintained steady growth. Furthermore, the company actively expanded global cooperation with existing customers, such as Mao Geping, Aidusa, and Opelai increased channel cooperation with Kuaishou and Pinduoduo in the second quarter to achieve relatively rapid growth; the JD channel was affected by the Beijing epidemic, and there was a certain decline in the third quarter. In terms of categories, GMV for personal care maintained steady growth. GMV in the food, pet, and jewelry categories added in 2021 grew rapidly. The beauty, home appliances, and trendy toy categories were affected by the epidemic, and GMV declined to a certain extent.
The impact of the pandemic is compounded by inventory removal, and profitability is under pressure in the short term. The company's 2022Q3 gross margin fell 18.4 pp to 28.7% year on year; on the cost side, the company's sales/management/R&D/financial expenses ratio was 8.6%/5.2%/-1.6%, respectively, with year-on-year changes of +4.5 pp/-3.7 pp/-2.4 pp/+1.9 pp, respectively. The online retail consumer market entered a low season in the third quarter. Coupled with repeated epidemics and weak consumption, the company increased sales expenses and increased the sales expense ratio in order to maintain the original revenue scale. On the other hand, in order to improve the quality of operations, the company cleaned up some brand inventories during the reporting period, putting pressure on gross margin. The decline in gross margin was compounded by an increase in the cost rate. The company's net interest rate fell 21.8pp to 12.6% year on year, and profitability was under obvious pressure.
Consumer demand has yet to recover, and category expansion will be steadily promoted. The third quarter is between major promotional activities such as “618” in the second quarter and “Double 11” in the fourth quarter. Consumer demand lags behind, and the online retail market enters a low consumption season. It is expected that Q4 company GMV will gradually pick up as consumption recovers. Furthermore, the rise in GMV in the pet, food, and jewelry categories has further verified the company's viability to expand from beauty to other categories. The company's ability to refine operation and marketing and creative service is the company's moat within the industry, and it is expected that the growth trend will continue through multi-channel and multi-category operation methods in the future.
Profit forecasts and investment recommendations. The estimated EPS for 2022-2024 will be 1.29 yuan, 1.60 yuan, and 1.98 yuan respectively, and the corresponding PE will be 21 times, 17 times, and 14 times, respectively. Considering that the transformation of the company's business structure continues to advance, category expansion and verification is feasible, profitability is expected to be gradually restored, covering “holding” ratings for the first time.
Risk warning: industry competition intensifies, consumption recovery falls short of expectations, private brand launches fall short of expectations