Incidents:
The company published its 2022 annual report and the report for the first quarter of 2023.
Comment:
The impact of the 2022 pandemic and Q1 significant impairment performance continued to pressure the company to achieve operating income of 3,242 billion yuan in 2022, a year-on-year decrease of 21.98%, a year-on-year loss of 139 million yuan in net profit attributable to the parent company, a year-on-year decrease of 133.92%, net profit loss of 172 million yuan after deducting non-return to the parent company, a year-on-year decrease of 147.55%. On the cost side, the company's sales/management/R&D expenses ratio in 2022 was 22.44%/4.16%/0.37%, respectively, and +2.32/+1.21/+0.1pct respectively over the previous year. The company's gross margin in 2022 was 27.06%, down 9.4 percentage points from the previous year. The company's net interest rate to the parent in 2022 was -4.3%, down 14.18 percentage points from the previous year. The decline in gross margin is due to weak demand for cosmetics compounded by strong sales discounts. In 23Q1, the company achieved operating income of 614 million yuan, a year-on-year decrease of 14.08%, net profit attributable to the parent company of -24 million yuan, a year-on-year decrease of 291.33%, and net profit of -25 million yuan after deducting non-attributable to the mother, a year-on-year decrease of 309.96%. On the cost side, the 23Q1 company's sales/management/R&D expenses ratio was 24.56%/5.01%/0.19%, respectively, and +2.84/+0.52/-0.26 pct respectively over the previous year. In 23Q1, the company's gross profit margin was 35.03%, down 0.29 percentage points from the previous year; the net profit margin to the mother was -3.95%, down 5.73 percentage points from the previous year. The sharp decline in net interest rates was due to asset and credit impairment losses totaling 176.057 million.
Private brands continue to be incubated, with revenue growth exceeding 60% in 2022
By business, 23Q1 e-commerce retail/brand marketing operation/other business revenue was 5.64/0.22/28 million yuan, year-on-year -12.05%/-12.36%/-41.76%, gross profit margin 35.67%/51.63%/9.28%, year-on-year -1.08/-1.06/+1.79pct. The company continued to incubate its own brands and launched its own brands in 2022, such as Discovery Files, iBeimeng, BeiBiyou, and Xuhuan, which contributed to a year-on-year increase of more than 60% in operating revenue.
The main player Tmall expands its platform, and emerging channels are growing rapidly
By platform, the revenue of Tmall domestic/Tmall International/other platforms in 23Q1 was 4.78/0.11/125 million yuan, -23.42%/-49.11%/+82.38%, gross profit margin 35.81%/21.67%/33.26%, and +0.19/-11.04/-0.18pct over the previous year. Revenue from the emerging channel business represented by Douyin increased by more than 60% in 2022. As of 23Q1, the number of small Douyin stores operated by the company reached 40, an increase of 7 over the end of '21.
Investment advice and profit forecasting
We expect the company to achieve operating income of 3,970/45.90/50.064 billion yuan in 2023-2025, net profit attributable to the mother of the mother will be 2,70/320/399 million yuan respectively, EPS will be 0.67/0.80/1.00 yuan/share respectively, and the corresponding PE will be 23/19/15x, maintaining the “increase in holdings” rating.
Risk warning
The risk of major brands taking back proxy operating rights, incubation of new brands falls short of anticipated risks, and competition in the industry increases the risk.