Incident: The company released its 2023 annual report. In 2023, it achieved operating income of 11.168 billion yuan, a year-on-year decrease of 8.0%, and realized net profit of 1,566 billion yuan, a year-on-year decrease of 37.2%. Q4 achieved operating income of 3.166 billion yuan, a year-on-year decrease of 3.52%, and realized net profit of 372 million yuan, a year-on-year decrease of 8.43%.
The company plans to pay HK5 cents per share for the year.
Comment:
The domestic market share fell to 1.5%, the overseas market grew steadily, and disposable & APV performance was outstanding.
In 2023, we achieved revenue of 11.168 billion yuan, a year-on-year decrease of 8.0%, mainly due to a significant decline in domestic business. By business, 1) Sales to corporate customers: Achieved revenue of 9.321 billion yuan in 2023, a year-on-year decrease of 12.7%. Among them, sales to customers in the US, Europe, other regions, and China were 4,084 billion yuan, 5,074 billion yuan, and 163 million yuan, respectively, with year-on-year changes of +8.2%, +8.9%, and -92.7%, respectively. 2) Sales to retail customers: That is, the company's APV open private brand products achieved revenue of 1,847 billion yuan in 2023, an increase of 26% over the previous year. Of these, sales of private brands to Europe and other regions and the US were 1,475 billion yuan and 372 million yuan respectively, +31% and +8.8%, respectively. In 2023, the company stepped up its overseas market development efforts. The VAPORESSO COSS series and VAPORESSO ARMOUR series were launched in overseas markets one after another. They have innovative automatic liquid injection functions, automatic charging functions, and a longer service life. By region, 1) US: In 2023, we achieved revenue of 4,084 billion yuan for corporate customers, an increase of 8.2% over the previous year. The US market share of the company's main customers remained the largest. As the FDA's enforcement of non-compliant products in the market becomes stricter, customer compliance products are expected to gradually expand their market share. 2) China: Achieved revenue of 163 million yuan in 2023, a year-on-year decrease of 92.7%, accounting for a significant drop of 1.5% from 18.5% the previous year. 3) Europe and other markets: In 2023, the company achieved revenue of 5,074 billion yuan, an increase of 8.9% over the previous year. In 2023, the company achieved revenue of 3.37 billion yuan for disposable products, an increase of 74.5% over the previous year, and the share of disposable product sales increased to 30.2%. In 2023, the company launched FeelMMax, an upgraded single-use ceramic atomization core technology platform, and has entered major customer supply chains and achieved large-scale shipments.
Automated production is improving efficiency, and the benefits of R&D investment are gradually showing. 1) In terms of gross margin, the company achieved a gross profit margin of 38.8% in 2023, -4.5 pct year on year, mainly due to changes in product structure. Among them, labor costs accounted for 5.5%, and -1.7 pct year on year, mainly due to increased production automation and reduced personnel. 2) In terms of period expenses, the company's sales, management, and R&D expenses rates in 2023 were 4.7%, 7.8%, and 13.3%, respectively, with year-on-year changes of +1.5pct, -1.7pct, and +2.0pct respectively. Among them, the increase in sales expenses was mainly due to the company increasing the establishment of a localized marketing team and increasing overseas market and new product development efforts. The reduction in the management expense ratio is mainly due to the company improving management efficiency. The increase in the R&D cost rate is mainly to increase investment in the field of atomization medicine. In the field of beauty, the company launched the MOYAL Lanzhi brand and first-generation atomized beauty product solution in the first quarter of '24, which is the first beauty product in the industry to atomize high-viscosity skincare essences.
Profit forecast and investment rating: Relying on the orderly expansion of manufacturing and accumulation of R&D advantages, the company continues to consolidate its leading position in global atomization technology. As the impact of domestic sales gradually digests, overseas growth drives are strengthened, new products are launched and R&D investment is gradually realized, we expect the company's share in the global atomization equipment industry to continue to increase in the medium to long term. We expect the company's net profit for 2024-2026 to be 1,647 billion yuan, 1,839 billion yuan, and 2.02 billion yuan, respectively, +0.1%, +11.6%, and +14.3% year-on-year, respectively. The current stock price corresponds to 2024 PE at 24x, maintaining the “Overweight” rating.
Risk factors: Regulatory risk, risk of a sharp rise in raw material costs.