Event: The company released its 2023 annual report. In 2023, we achieved revenue of US$359 million, up 1.4% year over year; realized adjusted net profit of US$38 million, down 22.9% year over year.
Profit level: The gross margin increased by 4pct to 61%, mainly due to an increase in the share of direct sales. The gross margin increased by 4.1 pct to 61.1%. The increase was mainly due to the expansion of the share of direct sales channels. The acquisition of direct sales channels in China was completed in 2023, the establishment of direct sales offices in the United Arab Emirates and Japan, and the strengthening of existing direct sales channels, driving the share of direct sales increased by 12 pcts to 78%. The costs of setting up a new direct sales office were incurred. The sales/management/R&D expenses rate in 2023 was 34.9%/9.5%/5.0%, respectively, +6.8/+1.3/-0.1pct. The adjusted net margin decreased by 3.3pct to 10.4%.
Business segmentation: The low revenue growth rate is mainly hampered by factors such as regional politics and dental adjustments.
By region: North America/ Asia/ Europe/ Middle East and Africa/ Latin America achieved revenue of 1.57/1.10/0.50/0.27/0.15 billion, respectively, +9%/+12%/-14%/-26%/-14% over the same period last year. Among them, North America continued to achieve success in the field of hair growth. Direct sales office operations in the Asia-Pacific region showed initial results, and performance declined in other regions due to macroeconomic factors such as regional political conflicts.
Business Segments: Medical Aesthetics, Dentistry, Injection Filling/ Services, and others achieved revenue of US$317/0.09/0.10/023 million, respectively, +3%/-49%/+9%/+17% over the same period last year. Among them, the medical aesthetic product line accounted for 88%, an increase of 1.5 pct over the previous year. The increase was mainly due to the expansion of indications to the field of hair growth; the sharp decline in the dental business was mainly due to the termination of a product line with low operating profits.
Pipeline progress: Domestic approval of the injection pipeline is imminent, and new personal care products continue to be iterated. 1) Injection pipeline: Domestic registration applications for scarce long-acting botulinum toxin Daxxify and Profhilo hyaluronic acid have all been accepted, and are expected to be approved for marketing in 2024. Continued development of lipolytic needles JS-001 and silk protein products is expected to fill gaps in the field. 2) Personal care: Launch of the new product LMNT O2. 3) Energy source: Soprano Titanium (hair removal) and Alma Veil (skin and vascular disease) were launched in North America, and Opus (skin rejuvenation and firming) was introduced outside the US.
Investment advice: As a global leader in energy source equipment, the company has formed a resonance of medical+aesthetic+dentistry. As the share of direct sales expands and the gross margin of injection pipeline layout continues to rise, it is expected to usher in a net interest rate inflection point after the channel stabilizes. The company is expected to achieve revenue of US$4.13/5.10/623 million in 2024 to 2026, and net profit of US$0.44/0.56 billion, corresponding to PE of 5/4/3 times, maintaining the “increase in holdings” rating.
Risk warning: Market competition intensifies; sales team construction falls short of expectations; promotion results fall short of expectations; domestic approval progress of follow-up injection pipelines falls short of expectations, etc.