Performance preview
The company predicts that net profit returning to mother will increase by 72%-89% year-on-year in 2023
The company released a performance forecast. Revenue is expected to increase by more than 30% in 2023, with net profit attributable to mother of 300-330 million yuan, an increase of 72%-89%; after deducting non-net profit of 220,000-250 million yuan, an increase of 62%-84%. We estimate that net profit from Q4 alone was 126-156 million yuan, an increase of 133%-188%; after deducting non-net profit of 0.63 to 93 million yuan, an increase of 35%-99%. The performance exceeded market expectations. We expect net interest rate improvements in Q4 and the whole year to exceed expectations, mainly due to the rapid growth of online channels and the increase in the effectiveness of single product strategies and operational efficiency.
Key points of interest
1. Q4 revenue bucked the trend, mainly driven by the new channel Doukuei and the second brand Love Fire. The company expects revenue to increase by more than 30% in 2023, and our Q4 revenue will also increase by 22%, bucking the trend and achieving rapid growth on the basis of a relatively weak beauty market. This is mainly due to the company's active promotion of online channel transformation and better grasping the pace of marketing throughout the year. By brand, according to the company's announcement: ① Marumi: E-commerce revenue for content represented by Douyin Kuaishou increased by more than 100% in '23. Among them, the four star products were anti-youth silky kit, Little Red Pen Eye Cream, and Quick Start with Small Gold Needles. According to Flying GMV, they each accounted for 40%/19%/7% of Douyin GMV in '23; ② Love Fire: Revenue in '23 increased by more than 100%. Among them, Maoqi and Douyin GMV were +42%/+189% year-on-year respectively. The liquid foundation all ranked in the top 2 of Maoqi and Douyin A star item.
2. Increased brand potential and optimized operational efficiency led to a significant month-on-month improvement in Q4 net margin. We estimate that the company's Q2-Q4 net interest rate showed a quarterly upward trend, and the net interest rate for the full year of 2023 also improved markedly compared to '22. We expect the company to focus on cultivating core product mentality and actively increasing brand marketing activities throughout the year, thereby driving product structure optimization and increasing brand potential, thereby promoting customer unit price increase and ROI optimization. According to Feikou data, Marumi and Love Fire brands have increased their unit price and ROI optimization. According to Feikou data, Marumi and Love Fire brands were +26%/+9% year-on-year respectively. In addition, non-recurring revenue of about $80 million in 23 years is expected to come mainly from income from entrusting others to invest or manage assets, government subsidies, etc.
3. The main brand's core products continue to be released, and the second brand continues to grow and strengthen brand building, and is optimistic about medium- to long-term growth space. Looking forward to the follow-up: ① Marumi: The company plans to continue to focus on core products such as Xiaohongbi Eye Cream, Xiaojin Eye Cream, Double Collagen Eye Mask, etc., to supplement new products such as sunscreen and face masks, and continue to promote the four-resistance package and upgrade the elasticity series on the Douyin channel; ② Love Fire: The company plans to iterate on new foundation products and supplement small categories, and at the same time strengthen brand building through IP co-branding, fashion events, etc. We are optimistic about the company's medium- to long-term growth space.
Profit forecasting and valuation
Considering the effectiveness of the company's large single product strategy and the increase in brand potential driving net interest rate improvements exceeding expectations, we raised our 2023-24 profit forecast by 10%/10% to 30/380 million yuan, respectively, and introduced a profit forecast of 480 million yuan for 2025. The current stock price corresponds to 29xP/E in '24, maintaining the industry rating and target price of 37 yuan, corresponding to 39x P/E in '24, with 32% upside compared to the current stock price.
risks
Industry competition intensified; channel reforms fell short of expectations; incubation of new brands fell short of expectations.