Incidents:
The company released its three-quarter report for 2023. The company achieved revenue/net profit of 4221/514 million yuan in the first three quarters, respectively, of -2.29%/-24.07% year-on-year. The revenue/net profit realized by 3Q2023 was 11.46/90 million yuan, -17.26%/-56.03% year-on-year, respectively.
Comment:
The functional skincare business is still in a period of strategic adjustment, and the four major brands continue to promote new iterations: According to Jiuqian's data, 3Q2023, the sales of the company's four major brands: RunBaiyan, Quadi, Mibel, and BM Muscle Activity showed a year-on-year decline. We think there are two main reasons: 1) the company's skincare business segment is in the stage of consolidation and transformation; 2) consumer spending power has not fully recovered, so they are more cautious about spending on optional consumer goods. The company's four major brands, Q3, continued to maintain iterative product updates in a single quarter, strengthen the shape of star products, expand the product matrix, and increase their appeal to consumers. For example, RunBaiyan launched “White Gauze Throw 2.0”; Quardy launched “Blue Throw 2.0”; Mibel launched a new product “Revitalizing Repair Cream” and BM Muscle Active launched a new product “Energizing Revitalizing Essence”.
We believe that the core competitiveness of cosmetics companies mainly consists of raw material research and development, product design and iteration, and channel layout and marketing tactics. At present, the company's competitive advantage in the field of raw materials is very obvious. Taking new cosmetic ingredients as an example, the number of company filings is among the highest among domestic beauty companies. As of October 2023, the company has registered 3 new cosmetic ingredients (hydrolyzed zinc hyaluronate, N-acetylneuraminic acid, hydrolyzed calcium hyaluronate). Although the current stage of consolidation and transformation will bring short-term pain, looking to the future, the optimized product matrix, channel layout, and marketing tactics will help the company's cosmetics business to be stable and far-reaching.
The transformation of the medical and aesthetic business has achieved remarkable results, with both marketing and new products: in terms of marketing, from July to October, the company participated and held many events one after another. For example, for the new product “Runzhi No. 5,” the company held a new product launch conference and “Every 5, 5 must be reached” activities; for the “Baby Needle”, the company held a “Wow” summer event and “Doctor Percent Contest”. In addition, in July and September, the company held the “Runzhi Medical Aesthetic Agency Standard Operation Meeting” and the “Global Injection Master Exchange Meeting” to continuously speak out in the field of industry compliance and academia, further shaping the company's professional image and increasing its influence.
In terms of new products, the “crosslinked sodium hyaluronate gel for injection” declared by the company in October 2023 was successfully approved for three types of device certification. The scope of indications is “injection under the skin (or under mucous membranes) to the culobe muscle layer”.
Currently, the consumer market for lip care and aesthetics in China is vast, and there are few compliance competitors. We are very optimistic about the company's promotion prospects for this product. According to Ipsos, among women aged 20-50 in China, more than 50% of beauty seekers believe they have lip problems and are in need of improvement. However, as of October 2023, there are few sodium hyaluronate fillers approved for the lips in China. Among them, Juvederm's texture is positioned as high-end, and the retail price of the terminal is 17,840 yuan; Jiaolan is positioned in the middle end, and the retail price of the terminal is 3,500 yuan, and competition on the track is not intense.
Dragged down by the basic skincare business, profitability continued to be under pressure: in the first three quarters, the company's gross margin was 73.1%, y-4.2pcts; the company's net profit margin was 12.2%, -3.5pcts year-on-year. 3Q2023, the company's gross margin was 71.1%, y-5.7pcts; the company's net profit margin was 7.8%, year-on-year -6.9pcts.
In terms of period expenses, the first three quarters were 59.6%, +0.9pcts year on year. Among them, sales, management, R&D, and financial expense rates were: 46.0%/7.6%/6.6%/-0.6%, respectively, and -0.1/+0.4 pcts year-on-year.
In 3Q2023, the period expense ratio was 63.2%, +3.5pcts year over year. Among them, the sales, management, R&D, and financial expense rates were: 45.6%/10.0%/7.9%/-0.2%, respectively, -0.8/+0.8/+0.6 pcts year-on-year.
Optimistic about the company's medium- to long-term development prospects and maintain the “buy” rating: since the company's functional skincare products are still in a period of change, we lowered the 2023-2025 revenue growth rate and gross margin, and lowered the company's net profit from 2023-2025 to 7.60/9.26/1,115 billion yuan respectively (down 31%/36%/38% from the original forecast), and the current stock price corresponding to 2023-2025 PE is 49/40/33 times. As a full-industry chain company in the field of hyaluronic acid, the company has remarkable collaborative advantages among business segments, and the company has actively deployed new raw materials such as collagen in recent years, further increasing its development ceiling. Furthermore, the company's medical and aesthetic reforms have achieved remarkable results. We are optimistic about the company's future development prospects and maintain a “buy” rating.
Risk warning: The company's business changes fall short of expectations, increased competition in the industry, and the risk of industry policy changes.