Incident: The company released its 2023 annual report. The company achieved operating income of 2,869 million yuan (+47.99%), net profit of 1,888 million yuan (+47.08%), net profit of 1,831 billion yuan (+52.95%), and operating cash flow of 1,954 million yuan (+63.67%); 2023Q4 achieved operating income of 699 million yuan (+55.55%) and net profit of 404 million yuan (+59.00%), net profit of 4.36 billion yuan (+59.00%). 100 million yuan (+87.73%).
The volume of core products drives high performance growth, and the word-of-mouth base and brand strength continue to be consolidated. The company's performance increased dramatically in 2023. On the one hand, due to the low base for the same period last year, on the other hand, it benefited from the continued expansion of core products. At the same time, the company relied on its leading position in the industry and brand recognition, and showed strong operational resilience in an environment of weak consumption recovery. By business, 1) Solution category: achieved revenue of 1,671 billion yuan (+29.22%), gross profit margin of 94.48% (+0.25pct), the core product “Hi Body” grew steadily, and its safety and efficacy were widely recognized by downstream medical institutions and end consumers; 2) Gel category: achieved revenue of 1,158 billion yuan (+81.43%), gross margin of 97.49% (+0.97pct), the world's first approved dermal filler containing L-lactic acid-ethylene glycol copolymer microspheres “Wet White Angel” Continuing good growth momentum, in different institutions across the country Rapid penetration has become a strong support point for the company to build a phenomenal product matrix.
Product structure improvements drive gross profit growth, and professional teams build enhanced marketing capabilities. In 2023, the company's profitability further improved, and gross margin increased 0.25pct to 95.09% year-on-year, mainly due to the increase in revenue share of high-margin gel products (40.35%, +7.4pct). In addition, the company continues to adjust the marketing system, expand the team, expand and deepen customer cooperation, and operate various academic brands such as Quan Xuan Medical Center, Master Master, and Contour Aesthetics Creation Camp to promote the industry's level of specialization. As of December 31, 2023, the company had more than 400 sales and marketing personnel, covering about 7,000 medical and aesthetic institutions across the country. Direct sales and distribution accounted for 62.26%/37.74% respectively, and the company's sales expense ratio increased slightly to 9.07% (+0.68pct).
Adhere to R&D to consolidate technical reserves and build a differentiated and strong product matrix. In 2023, the company developed 250 million yuan (+44.49%), accounting for 8.72% of revenue, and continued to increase R&D output through independent R&D and external cooperation. Currently, the company has a number of major products in the research pipeline, 1) “Bonida 2.0”: new chin filling indications, at the registration stage; 2) injectable type A botulinum toxin: used to improve interbrow lines, at the registration stage; 3) second-generation facial implant line: used for soft tissue lifting, in the clinical trial stage; 4) lidocaine cream: used to anesthetize the skin locally before adult superficial skin surgery, in the clinical trial stage; 5) injectable hyaluronidase: for dissolving hyaluronic acid, in the pre-clinical research stage;.
In addition, the company cooperated with Plastidebio to introduce simeglutide products, and invested 50 million yuan to hold 4.89% of its shares. At the same time, it signed a “distribution agreement” with Jeisys of Korea to obtain the promotion, distribution, sales and related services of Density and LinearZ medical and aesthetic equipment and consumables in mainland China.
Investment suggestions: As a leading domestic medical and aesthetic enterprise, the company's core products are growing steadily, and high-value-added products such as Wet White Angel are being rolled out in an orderly manner. As regulations gradually become stricter, the company's market share as a leader in compliance medicine and aesthetics is expected to increase further. We expect the company's net profit to be 24.84/32.99/4.337 billion yuan respectively from 2024 to 2026, up 33.64%/32.85%/31.45% year on year, EPS is 11.48/15.25/20.04 yuan respectively. The current stock price corresponding to 2024-2026 PE is 30/22/17 times, maintaining the “recommended” rating.
Risk warning: the risk that the pace of consumption recovery falls short of expectations, risk of policy uncertainty, risk of new product promotion falling short of expectations, risk of new product launches falling short of expectations.