Incident: FuRui Medical Technology Reveals 2023 Results:
2023: The company's revenue was US$359 million (+1.4%) and net profit of US$33 million (-17.9%). Despite facing global challenges in 2023, gross profit and gross margin increased against the trend. The decrease in net profit was partly due to one-time construction expenses such as direct sales offices, etc., and marketing expenses such as signing brand ambassadors.
23H2: Revenue of $187 million (+4.3%), net profit of $0.13 billion (-35.6%) to mother.
The decline in revenue growth was mainly due to fluctuations in foreign exchange rates and interest rates, the Russian-Ukrainian conflict in the European market compounded by the conflict between Palestine and Israel in the Middle East market, and the transition from distribution to direct sales in some regions. The year-on-year decline in net profit to mother was mainly due to a significant increase in sales rates.
Revenue Splitting: Injection & Direct Sales & North America Driven
By product: Medical and aesthetic revenue of US$317 million (+3.2%) for the full year of 2023, mainly due to the expansion of treatable indications into the hair growth sector and an increase in direct sales revenue; dental revenue of US$0.1 billion (-49.4%), mainly because the company stopped operating a low-profit product line and developed more profitable dental products; injectable filling revenue of US$0.1 billion (+9.3%). Profhilo's hyaluronic acid fillers and botulism products were accepted domestically, and are expected to be launched in 24, which is expected to drive further market expansion.
By channel: Annual direct sales revenue of US$280 million (+19.8%), distribution revenue of US$80 million (-34.4%), global direct sales strategy continues to deepen.
By region: North America's revenue of US$157 million (+9.2%) for the full year of 2023, focusing on phased success in new products such as the hair growth business; US$110 million (+11.8%) in the Asia-Pacific region, with growth due to excellent direct sales offices in China, India, South Korea, and Australia; Europe's US$50 million (-14.0%), revenue decline due to macroeconomic conditions, European energy supply issues, and Russian-Ukrainian conflict; Middle East and Africa of US$27 million (-25.6%), mainly affected by Israel's local exchange rate environment and political turmoil; Latin America $0.15 billion (-14.2%).
Profit Splitting: Direct Sales Drive Higher Gross Margins & Sales Rates
Gross profit margin: The gross profit margin for the full year of 2023 was 61.1% (+4.1pct), and the 23H2 gross profit margin increase of 60.80% (+3.8pct) was mainly driven by an increase in direct sales share (H2 direct sales revenue share of 85.4% (+11.3pct month-on-month).
Expense rate: 23 Annual sales, management, and R&D rates each accounted for 34.9% (+6.84pct), 9.5% (+1.31pct), and 5.0% (-0.07pct). 23H2 sales, management, and R&D rates are 38.1% (+8.18pct), 11.6% (+2.94pct), and 5.2% (-0.40pct), respectively. The increase in the sales expense ratio is due to the increase in sales team employees, the establishment of new direct offices, digital construction, and investment in new brand business development. The increase in management expenses is mainly due to amortization of intangible assets in recent mergers and acquisition-related transactions and the wage costs of newly established direct sales office employees.
Net interest rate: 23 Annual net profit margin 9.16% (-2.15pct) 23H2 net profit margin 7.52% (-3.34pct). The decline was mainly affected by the increase in sales rates.
Business highlights: Hyaluronic acid combined with botulinum toxin is launched, and direct sales are further integrated and upgraded ① Focus on continuous efforts in the field of injectable filling, and use the latest technology to develop flagship products to explore the market. The listing applications for Profhilo Hyaluronic Acid and Daxxify botulinum were accepted by the NMPA and are expected to contribute significantly after 24 years of marketing.
② Using joint ventures to explore the Chinese market, further invest in and expand the company's business and operations in the Chinese market, which is expected to further increase the profitability of the domestic market.
Investment advice: The company's short-term performance is disrupted by the transition period of channel transformation and external environment. In the long term, it is still optimistic about leading energy source growth and direct sales channel expansion. Focus on the space brought about by the growth of the North American hair growth market, channel changes in the Asia-Pacific market, and growth in the field of injectable filling. The year 24 will be an inflection point for the company's injection business expansion. Profhilo Hyaluronic Acid and Daxxify are expected to be approved and implemented in 24H2, which is expected to contribute significantly to broadening the company's business boundaries. The expected 24/25/26 performance is 0.5/0.74 billion US dollars, corresponding PE is 4/3/2x, giving a “recommended” rating.
Risk warning: industry competition intensifies; channel expansion falls short of expectations; risk of market regulation compliance