Incidents:

Rongtai Health released its annual report for 2023. In 2023, the company achieved operating income of 1,855 million yuan (-7.47% year over year); net profit to mother of 203 million yuan (+23.43% year over year); Q4 company achieved operating income of 557 million yuan (+25.84% year over year); and net profit to mother of 51 million yuan (+32.19% year over year).

Comment:

Domestic consumption is weak, and refined operations have stabilized income levels. In 2023, the company's domestic sales achieved revenue of 817 million yuan (-5.16% year over year), and gross margin was 36.57%, an increase of 0.53 pct over the previous year.

The consumption capacity and will of domestic residents is still recovering, and the K-shaped structure is obvious. Facing the trend of downgrading consumption of high-end products, the company has increased investment in terminal channel store upgrades, new product launches, etc., and has achieved steady growth in offline sales by combining online planting and short videos. Online investment in consumer education on platforms such as live e-commerce and Xiaohongshu has been increased, and transaction conversion rates have further increased. Moda's online competition intensified, revenue declined a lot, and the development of offline stores increased during the reporting period.

Overseas revenue is under pressure, and gross margin has increased markedly. In 2023, the company's export sales achieved revenue of 1,028 billion yuan (-8.59% year over year), and gross margin was 26.11%, an increase of 6.69 pct over the previous year. On the market side, orders in the South Korean market declined significantly in half of the year, and recovered one after another in the second half of the year; the US still experienced a slight decline throughout the year, and the Eastern European market grew significantly. In order to effectively explore overseas markets, the company signed a memorandum of cooperation with the Suvarnabhumi Asian Industrial Park in Thailand. The construction of the production base is progressing in an orderly manner, which helps the company explore the Southeast Asian market and strengthen the expansion of European and American customers.

The potential customer base is large, and we look forward to continued restoration of demand. The aging rate continues to rise in developed economies such as East Asia, Europe, and America. The elderly need health-care devices to promote blood circulation and relieve stress; the number of healthy white-collar workers in Asia also continues to rise. The company has been deeply involved in the industry for many years, has strong product technology, high brand recognition, continues to sink its domestic market strategy, and digs deep into potential customer groups.

Profit forecast: Taking into account the competitiveness and innovation of the company's products, we expect the company's revenue in 2024-2026 to be 20.5/23.4/2.73 billion yuan, up 10.6%/14.2%/16.7% year on year; net profit to mother will be 2.3/27/ 340 million yuan, up 13.7%/18.2%/23.8% year on year. First coverage, giving a “buy” rating.

Risk warning: raw materials rise, overseas demand falls, performance forecasts and valuations fall short of expectations