Incidents:
The company released its 2023 performance forecast: It is expected to achieve net profit of 200-250 million yuan in 2023, an increase of 835.99%-1069.99%; net profit after deducting non-return to mother is 19-240 million yuan, an increase of 2866.44%-3647.08% year-on-year.
The women's wear/medical/baby business recovered across the board, driving the impressive growth rate in 2023. The factors behind the year-on-year growth in 2023 are: 1) In 2023, with macroeconomic policy adjustments and the overall improvement of the economy, consumer fashion consumption tendencies recovered compared to 2022. The revenue scale of the company's fashion women's clothing and medical beauty business both increased significantly compared to the same period of the previous year, and the profit scale increased significantly over the same period of the previous year; 2) The women's clothing sector actively followed market changes and adjusted business strategies to improve performance through marketing promotion and embracing new retail; 3) 2023 New institutions added to the medical and aesthetic sector in the year, Wuhan Wuzhou and Wuhan Han Chen brought new results and an increase in the overall performance of new institutions of the same caliber; 4) The operating performance of the company's green infant business steadily increased along with the steady market share.
Both performance and profit improved. Endogenous growth and epitaxial expansion continued the endogenous perspective. Old institutions contributed to performance, second-generation institutions achieved profits, and newly established institutions climbed a slope. The revenue of the old 2023H1 institution increased 37.6% year on year, and the net interest rate increased from 5.02% in 202H1 to 10.01%. The revenue of the second new institution was steady but the profit margin was corrected year on year. The newly established institutions are small in size and are still climbing in production capacity.
From an epitaxial perspective, following the acquisition of Kunming Han Chen's controlling interest in 2022, the company further acquired the controlling interests of Wuhan Wuzhou and Wuhan Han Chen in 2023, and the above three institutions all achieved current performance promises in 2023, and a model driven by epitaxial expansion and endogenous growth gradually formed. At the level of industrial funds, the company has successively set up seven medical and aesthetic mergers and acquisitions funds, with an overall fund size of 2,837 billion yuan. Through specialized acquisition of funds and incubation of medical and aesthetic standards, it is expected that the scale of the medical and aesthetic business will continue to increase in the future.
Profit Forecasts, Valuations, and Ratings
We expect the company's revenue for 2023-2025 to be 47.51/55.74/6.384 billion yuan, respectively, with corresponding growth rates of 22.5%/17.3%/14.5%; net profit to mother of 234/3.03/377 million yuan, respectively, corresponding growth rates of 1353.0%/29.7%/24.4%; EPS of 0.53/0.69/0.85 yuan/share, respectively. Based on comparable company valuations, the company was given 30 times PE in 2024, corresponding to a target price of RMB 20.55, maintaining the “gain” rating.
Risk Reminder: Regulatory Policy Changes Exceeded Expectations; Medical Risk Incidents; Increased Industry Competition; Store Expansion Fewer Than Expected