Incident: Revenue in 2023 exceeded market expectations by +1110.8% year-on-year. The company with sufficient cash reserves achieved revenue of 138 million yuan in 2023 (+1110.8% year over year), and achieved revenue of 73 million yuan in a single Q4, exceeding market expectations, mainly due to the rapid release of hair and skin care products pipelines; net profit to mother of 1,964 million yuan in 2023. By the end of 2023, the cash balance was approximately $1.27 billion, with sufficient reserves. We believe that the company has built a double barrier between consumption+R&D, and that the short-term hair and skincare pipeline is expected to be rapidly expanded; the medium- to long-term pipeline promotion and active expansion will bring high growth. We maintain 2024-2025 and add a profit forecast for 2026. We expect the company's net profit to be -4.97/-3.41/-170 million yuan for 2024-2026, corresponding EPS of -1.63/-1.12/-0.56 yuan, and the total market capitalization/R&D expenditure in 2022 is at the average level of the industry. The valuation is reasonable, and the “buy” rating is maintained.

The hair and skincare pipeline achieved rapid volume. After adjusting for net loss, the revenue of the hair pipeline exceeded 96 million yuan (+933%) in 2023, of which the core single product, the French white tube, earned about 70 million yuan, accounting for about 73% of hair revenue; the main contribution came from the Ouma brand's sales revenue in 2023Q4 alone. In terms of profitability, the gross margin in 2023 was 51.6% (-18.2pct), mainly due to changes in product structure (the gross margin of the new skincare line was lower than the original hair line). Excluding the impact of one-time expenses and non-operating expenses such as changes in the fair value of convertible and redeemable preferred shares, listing expenses, and amortization of equity incentive expenses, the company's adjusted net loss in 2023 was 329 million yuan, which is within a manageable range.

Commercialization capabilities are expected to continue to be verified, and the second curve of the hair pipeline is expected to be successfully implemented and contributed to incremental products: in the hair sector, Tmall Kodi's overseas flagship stores have a repurchase rate of more than 30%, and customer stickiness is strong; the blue silk geometry relies on a perfect product matrix to provide diverse combination solutions, and the second curve of the hair pipeline starts quickly. Omar's performance in the skincare sector was outstanding. In 2023, Double 11 Olive Repair Essence ranked at the top of many lists, and the company's commercialization capabilities are expected to continue to be verified. marketing:

Grow grass globally, carry out comprehensive online+offline, B-end+C-side marketing activities, and promote the continuous improvement of brand potential.

Research pipeline: Various models are progressing smoothly. Among them, the major pipeline topical minocycline foam and topical finasteride spray are expected to be successfully implemented in 2024 and 2025, respectively, providing additional volume for the company's growth.

Risk warning: R&D progress blocked, sales falling short of expectations, uncontrolled expenses, medical incidents, regulatory changes.