The company announced its 2023 annual results:
1) In 2023, the company achieved revenue of RMB 2.145 billion/+31.2%, net profit of RMB 230 million/+108.2%, and adjusted net profit of RMB 241 million/+53.2%. In addition, cash and cash-like assets amounted to RMB 1.57 billion/+72.9%, with a dividend of HK$110 million.
2) In the second half of 2023, the company achieved revenue of RMB 1,108 million/+23.0%, net profit of RMB 109 million/+20.2%, and adjusted net profit of RMB 110 million/+2.9%.
Profitability has increased significantly, and expenses are well controlled:
1) In 2023, the company's net margin reached 10.7% /+4.0pcts, adjusted net margin reached 11.2% /+1.6pcts, gross profit margin 45.6% /+1.7pcts, sales expenses ratio 17.6% /+0.1pcts, management expenses ratio 14.8% /-3.2pcts, R&D expenses ratio 1.6% /-0.3pcts. The increase in gross margin was mainly due to an increase in the share of high-margin businesses, while the decline in management expenses was due to the exclusion of listing expenses.
2) In the second half of 2023, the company's net margin reached 9.8% /-1.8pcts, adjusted net margin reached 9.9% /-2.7pcts, gross profit margin 45.0% /-1.1pcts, sales expenses ratio 19.1% /+0.5pct, management expenses ratio 13.8% /-0.5pct, R&D expenses ratio 1.5% /-0.3pcts.
The number of members continues to expand, and the number of stores is rapidly expanding,:
In 2023, the number of active members directly managed by the company reached 93,700 thousand/ +19.6%, active members spent an average of 20,700 yuan/year on year +2,109 yuan, and direct store traffic reached 1,260 million/ +33.1%.
By the end of 2023, the total number of the company's stores was 400, with a net increase of 22; 201 direct-run stores, a net increase of 12, including 15 new traditional beauty stores and 15 upgrades, 3 new medical and aesthetic stores plus 2 upgrades, and 1 new Asian health store; 199 franchised stores, a net increase of 10.
Endogenous growth, medical, aesthetic and sub-health businesses maintained high growth:
By business, revenue from beauty and health services in 2023 was 1,194 million yuan/ +26.1%, accounting for 55.6%, with a gross profit margin of 39.6% /+2.8pcts. Among them, direct-run stores had revenue of 1,080 million yuan/ +29.2%, accounting for 50.3%, gross profit margin of 37.6% /+4.1pcts; franchisees and others had revenue of 114 million yuan/ +2.4%, accounting for 5.3%, with a gross profit margin of 58.2%/-3.4 pcts. The revenue from medical and aesthetic services was 850 million yuan/ +37.1%, accounting for 39.7%, with a gross profit margin of 53.8%/-1.5pcts. The revenue from sub-health assessment and intervention services was 101 million yuan/ +47.6%, accounting for 4.7%, with a gross profit margin of 46.7% /+8.2 pcts.
Outgoing mergers and acquisitions, and the proposed acquisition of Nerrell is expected to increase its market share:
The company announced that it intends to acquire 70% of the core assets of the Nariel brand, which is the main beauty and health care business, involving 80 beauty and health service stores, 6 medical aesthetic clinics, and 2 traditional Chinese medicine clinics located in the Guangshen region. The Nariel brand is a traditional beauty service provider with the second-largest market share in China, with revenue of 514 million yuan and net profit of 34 million yuan in 2023. We believe that the acquisition of Nariel will help the company expand its market share, supplement the beauty brand matrix, and further achieve brand collaboration.
Investment advice:
Buy-A investment rating with a 6-month target price of HK$17.33. Without considering the consolidated statement of the acquisition of Nariel, we expect the company's revenue growth rate from 2024 to 2026 to be +21.3%/+17.0%/+15.6%, respectively, and the net profit growth rate will be +22.8%/+19.1%/+16.4%, respectively, with outstanding growth; the investment rating given to Buy-A is 1.0837 HKD/RMB according to the exchange rate of 1.0837 HKD/RMB on March 27, 2024, and the target price for 6 months is HK$17.33, which is equivalent to 15 times the dynamic price-earnings ratio of 15 times 2023.
Risk warning: Market demand falls short of expectations, new brand development falls short of expectations, store opening speed falls short of expectations, etc.