Key points of investment
Incident: Net profit attributable to mother is expected to increase 124%-156% for the whole year. Q4 is clearly optimized for 23 years: net profit due to mother is expected to be 2.8-320 million yuan (if equity incentives are achieved, amortization of equity incentive expenses is about 6.49 million yuan), an increase of 124%-156%; deducted non-net profit of 2.6 to 30 million yuan, an increase of 169%-210%.
23Q4: Net profit due to mother is expected to be $10-140 million, with a median of $120 million, while 23Q3 net profit of $38 million and 22Q4 was only $0.06 million for the same period, with significant year-on-year improvements; 23Q4 deducted non-net profit of $0.7-110 million, with a median of $90 million, while 23Q3 deducted non-net profit of $48 million and loss of $13 million for the same period in 22Q4.
The high increase in the company's annual performance is mainly due to an increase in the share of high-profit brands such as Ifidan and good cost reduction, efficiency and cost control.
Interpretation: Non-profit and loss correction, equity incentive targets are basically in line with expected hedging losses+other non-recurring income → correction of non-recurring profit and loss. Previously, unrecurrent losses of $15 million were disclosed in the first three quarters of 23 years, while non-recurring revenue for the full year was about 0.2 billion yuan. It is estimated that the Q4 non-recurring revenue of $0.35 million is mainly due to the narrowing of hedging losses and other earnings effects due to the steady recovery of the RMB exchange rate in Q4.
The median net profit to the mother was 300 million yuan, which is basically in line with the equity incentive target. The company previously issued equity incentives, corresponding to the target net profit to mother (excluding the impact of incentive costs) of not less than 30/40 million yuan, an increase of 140%/33%; the corresponding apparent net profit to mother was 2.94/385 million yuan, an increase of 135%/31%. The company announced that the median net profit for 23 years will be 300 million yuan, which is in line with the equity incentive target.
Outlook: Proxy operations have stabilized, and Ifidan's potential will continue to rise during the Paris Olympics. Iffidan: gradual introduction of new products+strengthened channel layout, and high annual performance. The brand recently set up pop-up stores in core business districts such as Galeries Lafayette in Shenzhen and Taikoo Li in Beijing to strengthen customer reach, compounding this year's Paris Olympics traffic catalyst. We continue to be optimistic about the medium- to long-term profit growth of the high net interest rate brand (23H1 reaches 20% +).
Big Water Drop: Recently, a new 22-point collagen lip cream was launched. Based on the product matrix of the three major time series, it continues to strengthen the mentality of staying up late. It is expected that it will continue to maintain medium to high speed growth in the future.
Imperial Clay Shop: It is still being adjusted, but according to third-party data tracking, the Tmall channel Q4 has gradually recovered steadily.
Agent: A new partnership was reached with Kenvue (formerly Johnson & Johnson Consumer Division) in September '23, and the impact of previous business adjustments was gradually eliminated.
Profit Forecast and Valuation:
The company's own brands continue to be upgraded, driving increased profitability, and agent brands have also entered a healthy path, and are continuing to acquire new brands, and their performance is driven by multiple wheels. Net profit due to mother in 2023-25 is estimated to be $3.0/40/50 million yuan, respectively, +142%/32%/25% over the same period. Corresponding PE is 20/15/12X. Currently, it is still in a valuation depression in the beauty sector and maintains a “buy” rating.
Risk warning:
Industry sentiment is declining; consumption is weak; new brands fall short of expectations; new products fall short of expectations.