On October 30, the company announced its report for the third quarter of 2023. 2023Q1-Q3 revenue was 4.221 billion yuan, a decrease of 2.29%, and net profit was 514 million yuan, a decrease of 24.07%. As a leading hyaluronic acid leader, the company continues to expand into multiple business segments. It is expected that in the future, it will achieve a steady recovery on the revenue side and maintain its buying rating.
Key points to support ratings
Revenue fluctuated from 2023Q1-3, but the company actively upgraded its brand, and the long-term positive trend remained unchanged. Revenue for the first three quarters of 2023 was 4,221 million yuan, a year-on-year decrease of 2.29%, while net profit was 514 million yuan, a year-on-year decrease of 24.07%. Among them, Q3's quarterly revenue was 1,146 billion yuan, a year-on-year decrease of 17.26%, and net profit was 90 million yuan, a year-on-year decrease of 56.03%. Q3 Revenue fluctuations are mainly due to business adjustments and optimizations for its skincare brands. The company's four major brands, Runbaiyan/BM/Cuady/Mibel, continue to focus on brand positioning and actively carry out brand upgrades. Run Baiyan has strengthened the operation of new products, and BM Skin Activating Brown Rice Water has strengthened its position in skin care for oily skin. Quadi is positioning itself as an anti-aging middle and high-end racetrack to expand its cream products. Mibel focuses on young customers with sensitive skin. In Q3, Mibel launched pink bandages and camellia masks to complement the company's product matrix. In terms of raw materials business, the company relies on the production advantages of the entire industry chain, and the leading advantages of pharmaceutical-grade and cosmetic-grade raw materials are highlighted. In terms of medical terminal business, revenue from dermatologic medical and aesthetic projects increased and market recognition for injectable products increased.
Profitability fluctuated due to the decline in gross margin of the skincare business, the sales expense ratio declined, and the overall operation was stable. The company's overall gross margin fell 4.16 pct to 73.07% year on year due to fluctuations in the retail side of the skincare business and the decline in average product prices in the first three quarters of 2023. The sales expense ratio was 46.02%, down 0.96pct from the previous year, mainly due to improved marketing efficiency and stable management/R&D expenses. The inventory balance at the end of the Q3 period was $1,198 million, up $120 million year on year. The number of inventory turnover days for the first three quarters increased 35 days to 280 days year on year, mainly due to product preparation; accounts payable balance was $572 million, up $88 million year on year; and net operating cash flow was $235 million, up 101.64% year on year.
Optimize channels+expand the product matrix, and look forward to the effects of cosmetics brand upgrading. In terms of the skincare business, the company has taken the initiative to optimize and adjust omni-channel optimization and product repositioning for its four major brands. We expect future product strength to be strengthened based on the strength of face masks and essences; BM Muscle Activity has sorted out core products and is expected to effectively enhance customer stickiness; Quadi focuses on the anti-aging circuit to expand product categories and quantities; and Mibel is positioned as the cosmetics business optimization process progresses, and it is expected to achieve steady growth. The company is based on leading hyaluronic acid advantages and raw material business expansion. The medical and aesthetic business focuses on facial rejuvenation. The skin and injectable products have a high level of user satisfaction. The launch of new products for lip and peri-lip hyaluronic acid injections in October is expected to further drive revenue growth.
valuations
Considering that there is a certain process of adjusting the company's cosmetics business, the profit forecast was lowered. The estimated EPS from 2023 to 2025 is 1.65/2.03/2.44 yuan; PE is 46/37/31 times, respectively, maintaining the buying rating.
The main risks faced by ratings
Risk of new product development and launch; online sales falling short of expectations; risk of increased competition.