Incidents:
The company released its 2023 annual report, achieving revenue of 2,869 billion yuan, +48.0% year-on-year; realized net profit to mother of 1,888 billion yuan, an increase of 47.1% over the previous year. 4Q2023 achieved revenue of 699 million yuan, a year-on-year increase of 55.5%, and realized net profit of 440 million yuan, an increase of 62.2% over the previous year. In 2023, the net cash flow from the company's operating activities was $1,954 million, an increase of 63.7% over the previous year.
Comment:
Wet White Angel's sales volume increased, driving up the company's revenue and net profit: in 2023, the company's solution/gel products achieved revenue of 16.71/1,158 billion yuan respectively, +29.2%/+81.4%; sales volume of solution/gel products was 514.13/1.068 million units, +48.9%/+36.1% year-on-year; the average unit price of solution/gel products was 325/1150 yuan, respectively, -13.2%/+33.3% year-on-year. We think the average price of solution products declined. This is due to changes in product structure, such as the increase in revenue share of 2.5ML products and product expansion. The increase in the average price of gel products is due to an increase in the share of recycled products with high unit prices. In 2023, the growth of China's medical and aesthetic industry was under pressure, but the company's basic market — “Hi Body” and the high-end regenerated product “Wet White Angel”, continued to grow. By the end of 2023, the company's products had covered 31 provinces, cities and autonomous regions in China, covering about 7,000 medical and aesthetic institutions. In 2023, the revenue from the company's direct sales and distribution models was 1,787/1,083 billion yuan respectively, +43.1%/+56.9% year on year; the proportion was 62.3%/37.7%, respectively, -2.1/+2.1pcts year on year.
Product structure improvements led to an increase in gross margin. Expense control was strict during the period: benefiting from the increase in volume of the high-end product “Wet White Angel”, the company's gross margin in 2023 was 95.1%, +0.2 pcts year on year; net margin was 64.8%, -0.4 pcts year on year. 4Q2023, the company's gross margin was 94.4%, -1.2pcts year on year; net margin was 63.0%, +2.6pcts year on year. In 2023, the company's annual expense ratio was -0.5pcts to 20.9% year-on-year. By project, the sales/management/R&D/finance expense ratios were 9.1%/5.0%/8.7%/-1.9%, respectively, +0.7/-1.4/-0.2/+0.4 pcts, respectively. After optimizing the epidemic control policy, the company quickly strengthened market promotion and increased sales expenses. In 2023, the company's conference fees/travel and transportation/business hospitality expenses were 2777.8/1826.0/104.48 million yuan, respectively, compared with +108.5%/+189.4%/+59.5%; a total of 1,753 academic training and conferences were organized, including 337 online meetings and 1,416 offline meetings, covering 22 topics. The company continues to focus on R&D. The R&D expenses in 2023 were 250 million yuan, +44.5% over the same period last year. By the end of 2023, the company's R&D personnel accounted for 26.7% of the company's total number, +1.3 pcts year on year; 35 invention patents were obtained, an increase of 10 compared to the end of 2022.
“Bonida 2.0” and botulinum toxin have begun registration, and there are plenty of reserve programs: According to the company's announcement, “injectable type A botulinum toxin” and the high-end product “Bonida 2.0” (with additional chin filling indications) are already in the registration process. We believe that if the company successfully launches “injectable botulinum toxin type A” and “Bonida 2.0” in 2024-2025, it will empower downstream medical and aesthetic institutions to have more combined treatment plans and differentiated service items, effectively consolidating the company's leading position. In addition, the company has a variety of reserve projects, specifically: 1) second-generation facial implants for soft tissue lifting are in the clinical trial stage; 2) lidocaine butacaine cream used to anesthetize the skin before superficial skin surgery for adults is in the clinical trial stage; 3) injectable hyaluronidase for dissolving hyaluronic acid is in the pre-clinical research stage; 4) On the basis of cooperating with Beijing Quality Biopeptide Pharmaceutical Technology Co., Ltd., to hold 4.89% of the shares in peptidebio with a total investment of 50 million yuan; 5) with Jeisys Korea MedicalInc. signed a “Distribution Agreement” to lay out the Medical and Aesthetic Optoelectronics Circuit.
Leading medical and aesthetic companies maintain a “purchase” rating: considering that the company's future reserve projects are abundant, and multiple new products may contribute revenue in 2024-2025, we expect the company's 2024-2026 revenue to be 40.49/54.87/6.892 billion yuan respectively; considering the company's future commercialization of new products and increased investment in R&D, we raised the company's period expense ratio. The net profit to the mother for 2024-2026 is estimated to be 25.22/31/4 3.231.53 billion yuan respectively (2024-2025 net profit to mother will be reduced respectively 1.9%/3.8%), corresponding EPS is 11.66, 15.35, and 19.19 yuan, respectively, and the current stock price corresponding to PE is 30, 23, and 18 times, respectively. As a leading medical and aesthetic enterprise, the company currently has a low valuation level and maintains a “buy” rating.
Risk warning: Competition in the industry intensifies, consumer purchasing power recovery falls short of expectations, risk of changes in industry policies, risk of commercial promotion of new products falling short of expectations.