Core views
The company announced its 2023 annual results. The revenue and profit sides maintained rapid growth, and the performance exceeded previous expectations. The rapid growth of effective skincare products is driving revenue growth. Resume's sales volume has exceeded expectations, and the product expansion has achieved remarkable results. The share of direct sales has further increased, and the growth rate is significantly faster than other channels. The company is a leading domestic enterprise in the field of recombinant collagen. It has excellent business performance and equity incentives show confidence. Basic research continues to advance, and the three-helix structure is progressing. Looking ahead, approval of injectable products in '24 is expected to become a growth point for future performance.
occurrences
Company Announces 2023 Results Announcement and Dividend Payment Notice
On March 25, the company announced its 2023 annual results. In 2023, it achieved revenue of 3,524 billion yuan, an increase of 49.0% year on year; net profit to mother of 1,452 billion yuan, up 44.9% year on year; adjusted net profit of 1,469 billion yuan, up 39.0% year on year. Furthermore, on July 5, 2024, the company will pay a final dividend of 0.44 yuan/share and a special dividend of 0.45 yuan/share for the year ending December 31, 2023, for a total dividend of more than 800 million yuan.
Brief review
Annual results exceeded expectations, and the three-helix structure progressed
The company's annual revenue increased by nearly 50% year-on-year, and adjusted profit increased by nearly 40%. Benefiting from the expansion of product types, the deepening cultivation of online channels, and the creation of star products, its performance has maintained rapid growth in recent years. The overall quality of operations is high, and the performance has exceeded previous expectations.
The rapid growth of effective skincare products is driving revenue growth. In terms of product categories, the company's effective skincare business is the largest revenue source, with revenue of 2,647 billion yuan in 2023, an increase of 69.52% over the previous year. The efficacy skincare business benefited from strengthened omnichannel marketing activities, steady growth in classic categories, and a high increase in star products, maintaining a rapid growth trend, accounting for a further increase of 75.1% of revenue, +9.1 pct compared with the same period last year. The medical dressing business generated revenue of 881 million in 2023, up 13.25% year-on-year, and maintained a steady growth trend. Health food revenue was 16 million yuan, a year-on-year decline. It is expected to be related to the company's sales strategy and product restructuring.
However, the volume of resumei has exceeded expectations, and the product expansion has achieved remarkable results. In terms of brands, Kefu Mei's revenue grew rapidly to 2,788 billion yuan, up 72.86% year on year, and its revenue share increased to 79.12% (+10.9 pct year on year). Fumei's revenue growth exceeded expectations mainly due to (1) continuous expansion of online and offline channels, optimization of operating strategies, and further increase in brand influence; (2) continuous expansion of products in categories such as essences, lotions, and masks, contributing to revenue growth. Kefumei recombinant collagen dressings ranked as Tmall's TOP1 in the wound dressing category and Jingdong's TOP1 in the medical beauty care category in 202318 and Shuang11; GMV increased by more than 700% year-on-year during the 2023-618 period, and GMV increased by more than 200% year-on-year during the Double Eleven period. Clejin's revenue was 617 million yuan, -0.29% year over year, basically the same as in '22; revenue from other specialty skin care brands was 103 million yuan, up 14.2% year on year, mainly due to revenue growth of predictable brand products.
Online channel construction has achieved remarkable results, and the growth rate of direct sales is significantly faster than other channels. The company's direct sales revenue in 2023 was 2,421 billion yuan, up 72.67% year on year, accounting for 68.7% (+9.4 pct) of total revenue; distribution channel revenue was 1,104 billion yuan, up 14.65% year on year, accounting for 31.3% of total revenue. In the direct sales channel, online direct sales revenue through DTC stores was 2.55 billion yuan, up 77.49% year on year. The growth rate was significantly faster than other channels, accounting for 61.1% (+9.8 pct) of total revenue. Online channel expansion results were remarkable, and e-commerce platforms such as Tmall and Douyin achieved rapid revenue growth; online direct sales revenue for e-commerce platforms was 178 million yuan, up 42.57% year on year, accounting for 5.0% of total revenue; offline direct sales revenue was 89 million yuan, up 39.59% year on year, accounting for 2.5% of total revenue, mainly due to the company's continuation Strengthen the number and product coverage of offline direct sales stores such as pharmacy chains and cosmetics chains. Currently, through offline direct sales and distribution channels, the company has entered about 1,500 public hospitals (+200 compared to the end of '22), 2,500 private hospitals and clinics (+500 compared to the end of '22), 650 pharmacy chains (+150 compared to the end of '22), and 6,000 CS/KA stores (+2,500 compared to the end of '22). The omni-channel sales network is expected to bring wider consumer reach in the future.
The gross margin remained stable, and the 23H2 sales expense ratio declined month-on-month. In 2023, the company's gross margin was 83.6%, which remained high overall, down 0.8 percentage points year on year, mainly affected by increased sales costs and product type expansion. In 2023, the company's sales expense ratio, management expense ratio, and R&D expense ratio were 33.0%, 2.7%, and 2.1%, respectively, with year-on-year changes of +3.17 pct, -1.95 pct, and +0.26 pct, respectively. The change in the sales expense ratio is mainly due to the rapid expansion of the company's online direct sales channels, and online marketing expenses have increased, but judging from the trend, the increase has slowed. 23H1 and 23H2 sales expenses rates were 34.58% and 31.76% respectively. The sales expenses rate declined sequentially in the second half of the year, and the refined operation capacity continued to improve. The R&D cost rate continues to rise, and the company continues to invest in basic research and product pipelines. The decrease in the management fee ratio is mainly due to the reduction in listing expenses.
Equity incentives show confidence: On December 28, 2023, the company's equity incentive plan was implemented, granting a total of 20 million share options to 128 beneficiaries. Target: The four core executives, Fang Juan, Ye Juan, Zhang Huijuan, and Yan Yajuan, each awarded 600,000 copies, for a total of 2.4 million copies; a total of 17.6 million copies were awarded to 124 other employees. Exercise price: HK$35.05 per share. Vesting period: 40%, 30%, and 30%, respectively, after one year/two years/three years from the date of grant. Assessment objectives: Each grantor must achieve their respective assessment goals during the attribution period, including 1) the Group's annual results and performance; 2) the key performance indicators of each department and/or business unit to which the grantor belongs; 3) personal position, annual assessment results and other factors relating to the grantor. The company's current business development trend is good. The equity incentive plan helps the company to deepen ties with core employees, and the assessment goals clarify the company's confidence in future growth.
Basic research continues to be deepened, and progress has been made in the three-spiral structure: as of December 31, 2023, the company has obtained 61 patents and is currently applying for 61 patents in this field, published 151 academic papers, and published 1 monograph. At present, the company's research team has successfully constructed three types of recombinant collagen with triple helix characteristics, including 1) low-temperature loose three-helix, which has been produced since 2001, and has been applied and mass-produced one after another; 2) three spirals that are stable at room temperature, which is unique to the company; 3) high-temperature tight three-helix. Research on recombinant human collagen with a natural three-helix (high-temperature tight three-helix) structure has now made phased progress. In the future, as expression efficiency continues to improve and production costs are further reduced, it is expected to further enrich application scenarios for high-temperature tight three-helix.
Future outlook: Focus on the progress of the marketing of Class III medical device injectables. The company currently has a rich research pipeline. By the end of the reporting period, it had more than 100 research projects and had more than 40 types of collagen molecules in the recombinant collagen molecular bank. In particular, in the field of fillers for skin revitalization products and biomedical materials, the company lays out 4 key products, and the overall barriers are high. Two injectable products: recombinant collagen liquid formulation (water light), solid preparation (eye area) are expected to be approved in 2024 (Q2-Q3), recombinant collagen gel (moderate to severe neck lines) and crosslinked recombinant collagen gel (medium to severe nasolabial folds) are expected to be approved in 2025, which is expected to become a growth point for future performance. On the brand side, benefiting from the deep cultivation of online channels, Ke Fu Mei is expected to maintain a good growth trend. After structural adjustments in 2023, Klein is expected to resume normal growth in 24.