Incident: The company released its 2023 annual report. The company achieved operating income of 21.036 billion yuan, +1.12% year over year; realized net profit to mother of 1,881 billion yuan, +0.41% year over year; and realized deduction of non-net profit of 1,764 billion yuan, -1.83% year over year. In 2023Q4, the company achieved operating income of 3,581 billion yuan, +0.18% year on year; realized net profit of 324 million yuan, or -34.89% year on year; realized net profit without deduction to mother of 318 million yuan, -26.67% year on year.

The gross margin increased year-on-year for the whole year, and the increase in the cost ratio was due to increased investment in sales, consulting and R&D:

The company's gross profit margin was 16.51% in 2023, +0.15pct; the company's Q4 gross profit margin was 19.95%, -1.49pct; the 2023 sales expense ratio was 3.05%, +0.23pct; management expense ratio 2.25%, +0.17pct; R&D expense ratio 2.80%, +0.36pct; financial expense ratio -1.95%, y-0.11pct.

The increase in the company's expense ratio during the period was mainly due to an increase in sales investment, consulting service expenses, information system amortization, and R&D investment.

Product strength and brand power continue to improve, and strengthen channel construction and upgrading: the company continues to improve product strength, fully upgrade the development of key products from Emma's positive product development process to an integrated product development process; continue to promote channel power improvement, continue to expand the number of channels, and on the other hand, accurately study the consumer demand characteristics and market trends of each region and group, and adjust the channel structure and product portfolio strategies corresponding to different channels in a targeted manner; Continue to promote brand strength improvement, with fashion, innovation, personalization, digitalization, social participation and social responsibility as the core All-dimensional brand rejuvenation and upgrading.

Investment advice: We expect the company to achieve net profit of 21.60, 26.17, and 3.137 billion yuan in 2024-2026, corresponding PE of 13.36, 11.03, and 9.20 times, respectively, to maintain the “increase in holdings” rating.

Risk warning: risk of fluctuations in raw material prices; risk of increased industry competition; risk of macroeconomic downturn.