Key points of investment
Incident: The company announced that in 2023, it achieved total operating revenue of 2,869 billion yuan (+47.99%, indicating a year-on-year ratio, same below), and achieved net profit of 1,888 billion yuan (+47.08%) to mother; net profit after deducting non-return to mother of 1,831 billion yuan (+52.95%). The results were generally in line with expectations.
Growth accelerated sequentially in the fourth quarter of 2023, and gross margin continued to rise throughout 2023. In the Q4 2023 quarter, the company achieved total revenue of 699 million yuan (+55.55%) and achieved net profit of 404 million yuan (+59%). Compared with total operating income (+17.58%) and net profit to mother (+13.27%) in the Q3 2023 quarter, the company achieved a month-on-month acceleration. We believe that, on the one hand, due to the low base affected by the epidemic in the fourth quarter, and on the other hand, due to the continued release of “Wet White Angel” and the steady growth of the “Hi Body” series products. In 2023, the company achieved a gross sales margin of 95.09%, (+0.24pp), a net sales margin of 64.65% (-0.73pp), and the profit margin remained high. The overall cost ratio for the period decreased by 0.53 pp year on year, including: sales expenses ratio 9.07% (+0.68pp), management expenses ratio 5.03% (-1.44pp), R&D expenses ratio 8.72% (-0.21pp), and financial expenses ratio -1.89% (+0.44pp). The increase in financial expenses was mainly due to a decrease in interest income.
“Wet White Angel” continued to grow in volume, and “Hi Body” maintained a relatively rapid growth rate. By business, in 2023, 1) gel injection products achieved revenue of 1,158 billion yuan (+81.43%) and a gross profit margin of 97.49% (+0.97pp); we believe that the high product growth is mainly due to the continuous promotion and sales of “Wet White Angel” skin acupuncture, driving the growth rate, and increasing its share, driving up the gross margin of gel products. 2) Solution injection products are mainly based on “Hi-Body”, which achieved revenue of 1,671 billion yuan (+29.22%) and a gross profit margin of 94.48% (+0.25pp). The “Hi Body” series products have achieved a relatively rapid growth rate based on mature brands and markets. 3) Revenue from facial implantation line products was 5.92 million yuan (+10.06%).
Represent medical and aesthetic equipment, develop new products, apply new indications, and create new growth points. In November 2023, the company announced that it will exclusively distribute Density and LinearZ medical aesthetic treatment equipment and supporting consumables under South Korea's Jeisys Medical Inc. in mainland China, expanding the range of medical and aesthetic dermatology products. In addition, the modified sodium hyaluronate gel containing polyvinyl alcohol gel microspheres (to increase the indications for chin filling) and injectable botulinum toxin type A (used to improve freckles), which are currently being developed by the company, are already in the registration phase, and are expected to bring new growth points after marketing. In addition, seven medical products, such as sodium hyaluronate - hydroxypropyl methylcellulose gel and lidocaine butacaine cream, are in the clinical or pre-clinical stage, and the research pipeline ensures the company's continued growth in the future.
Profit forecast and investment rating: Taking into account changes in the macro environment, etc., we lowered the company's net profit from 2024-2025 from 25.32/3.297 billion yuan to 25.12/3.255 billion yuan. It is estimated to be 4.083 billion yuan in 2026, which is 30/23/19 times the current market value. Considering the company's brand and channel advantages in the medical and aesthetic field, the product line is gradually being enriched, maintaining a “buy” rating.
Risk warning: increased market competition; risk of new product development or promotion falling short of expectations; risk of industry policy uncertainty, etc.