Description of the event
The company released its 2023 annual performance report. In 2023, it achieved total revenue/net profit/total revenue of 111.68/16.45/1,566 billion yuan, a year-on-year decrease of 8%/34%/37%; 2023H2 achieved total revenue/net profit/overall revenue of 60.46/9.28/ 832 million yuan, a year-on-year decrease of 7%/18%/25%; and 2023Q4 realized total revenue/overall revenue of 31.66/ 372 million yuan, a year-on-year decrease of 4%/8%.
Incident comments
Revenue side: ODM business revenue is under pressure, single-use cigarettes have increased rapidly, and independent brand business revenue has maintained a relatively rapid growth rate. Looking at the TOB business, revenue in 2023 fell 13%, with revenue accounting for 83%. Among them, the US/mainland China/Europe and other countries and regions had +8%/-93%/+9% year-on-year revenue, of which 2023H1 revenue was +28%/-96%/+32%, 2023H2 revenue was -6%/-82%/-5%. The year-on-year decline in revenue in Europe and the US is expected to have a certain impact on exchangeable products in the second half of the year. Core customers: In 2023, A customer revenue was -11%, accounting for 49% of TOB business revenue (+0.7pct year over year). Looking at the TOC business, revenue increased by 26% in 2023, and the revenue share increased year by year (the share of revenue in 2021-2023 was 8%/12%/17%, respectively). The new VAPORESSO COSS and VAPORESSO ARMOUR series appeared in overseas markets one after another, and the company has now completed the construction of local teams in major markets, reaching the top 1 market share in more than 10 countries and regions.
Profit side: Changes in revenue structure in 2023 compounded expenses, putting pressure on profitability. The company's net profit also fell 34% in 2023, mainly due to a decline in domestic revenue, a decline in comprehensive gross margin, and an increase in sales expenses and R&D expenses. The gross margin/net margin in 2023 was 38.8%/14.7%, -4.5/-5.9pcts. The main reasons for the decline in profit margin were: 1) disposable products with low gross margins grew rapidly, and revenue share increased rapidly; 2) With the implementation of the new national standard, the domestic business revenue share with high gross margin was drastically reduced; 3) Due to the construction of independent brand localization teams and digital marketing, the sales expense ratio increased by 1.5 pcts year on year; 4) Continuously increase investment in R&D, and the R&D cost rate increased by 2.0pcts over the same period last year. The net cash flow from the company's operating activities in 2021-2023 was 63.63/31.55/ 3.287 billion yuan, which was higher than net profit after tax for three consecutive years, showing good cash quality.
The decline in 2023Q4 revenue narrowed month-on-month, and revenue showed a quarter-by-quarter improvement trend. The company's 2023Q1-2023Q4 revenue was +12%/-24%/-10%/-4%, respectively, and total overall revenue was -44%/-49%/-35%/-8%, respectively. The decline in 2023Q4 revenue and profit narrowed month-on-month, and revenue showed a quarterly improvement trend.
The scale and coverage of China's e-cigarette exports continues to expand. The total export volume in 2023 reached 11.08 billion US dollars, an increase of 12.48% over the previous year. It has been exported to 167 countries and regions around the world, and continues to be optimistic about the company's medium- to long-term growth as a leading e-cigarette OEM export leader. In the context of stricter regulations, the market share of leading compliant brands is expected to continue to rise. The company's major customer, VUSE, accounts for 45.6% of the US market. At the same time, NJOY showed a good development trend after being acquired by Altria. Overseas redemption products are expected to perform steadily, and the Chinese market is expected to recover steadily. The company adheres to the long-term principle, optimizes the R&D investment structure, and increases investment in independent brands, atomization technology, HNB, etc. It is expected that in the future, self-use brands and disposable products will continue to grow rapidly. At the same time, categories such as HNB, nebulized medicine, atomized beauty, and atomization for special purposes are expected to gradually contribute to revenue and profit growth.
The company's net profit for 2024-2026 is estimated to be 16.5/19.0/2.13 billion yuan, corresponding to the current PE 23/20/18 times.
Risk warning
1. Competitor technology has achieved major breakthroughs; 2. Terminal demand falls short of expectations.