The company continued to grow at 23Q4+24Q1, and the performance was in line with expectations. The dividend ratio increased from 30% to 71% in '23, demonstrating the importance and sincerity of shareholder returns. The company's organizational structure adjustments and sales team upgrades in the past 2 years have achieved remarkable results. BF is currently still hampering profits, but the project reserves are sufficient, and they are concerned about profit improvements brought about by order delivery. Considering that the company's high investment period has passed, the dividend center is expected to improve compared to before.

The 23-year results were in line with expectations, and the dividends showed sincerity. The company released its 2023 annual report. The company achieved revenue/net profit/ net profit/ deducted non-net profit of $35.82/2.81/281 million, +43.0% year-on-year. Among them, 23Q4 revenue/profit was +50.1%/+165.5% YoY, and the performance was in line with expectations. The company plans to use the capital reserve fund to transfer 3 shares for every 10 shares to all shareholders. There will be no bonus shares, and a cash dividend of 198 million (tax included). The dividend ratio will be raised from 30% to 71%, demonstrating the importance and sincerity of shareholders' returns.

Inventory removal in North America dragged down the growth rate, and China's market share continued to rise. Looking at the subregion, the company's business in China increased by 24.1% year-on-year to 1.85 billion in 23. It achieved faster growth than the industry by investing deeply in high-value customers, seizing high-value products in the market, and expanding the coverage of the retailer's business. Inventory removal in the American market was still a drag on the Q4 endogenous business, but orders have resumed high growth, and the consolidated BF achieved 93% growth throughout the year. As Europe accumulated orders were delivered one after another and the sales team was upgraded, the revenue was +33.8% year-on-year to $530 million. The new domain market doubled year-on-year under a low base. By product, due to the merger of BF (mainly softgels & hard capsules), the company's revenue for softgels was +54.0% YoY to 1.53 billion, of which endogenous +5.6% YoY and Hard Gels were +300.3% YoY to 150 million. Compared with tablets and powders, +6.2% and +52.5%, the faster growth of powder is related to lower base and combined BF. Revenue from emerging dosage forms of gummies and beverages was +24.8% and +24.7% year-on-year.

Endogenous earnings hit a record high, and BF dragged down net interest rate performance. The company's 23-year gross margin was -0.91pct to 30.3%, mainly dragged down by BF losses. The impact of BF amortization was restored to about 55 million, and gross margin increased 0.6 pct to 31.8%. Among them, internal gross margin improved significantly (+5.4pcts) from '22 due to pricing strategies, lean production, and the development of cost reduction efforts. In terms of dosage forms, the gross margin of tablets, gummies, and beverages increased significantly, up from +4.6/+9.0/+5.0pcts to 47.4%/27%/20.6%. The increase in gross margin of gummies was related to increased capacity utilization and the positive impact of the US dollar exchange rate. The company's sales expenses in '23 were +113.3% to $278 million, mainly due to factors such as the doubling of wages, remuneration, and marketing expenses due to the BF merger. The sales expense ratio was +2.6 pcts to 7.8% year over year. The results of cost reduction and efficiency were remarkable, and the management cost ratio was -2.3 pcts to 9.8% year-on-year. Financial expenses increased from 7.170 million to 52.33 million due to interest on convertible bonds and interest on external loans. Actual tax rate - 3.5pcts to 12.1%. Overall, the company's net interest rate for '22 was -0.62 pct to 7.8%, with endogenous net interest rate of +4.7 pcts to 13.2%, a record high.

In 24Q1, China showed strong resilience under a high base, and the US resumed high growth. The company achieved revenue/net profit/net profit net profit of 951/0.63/65 million in 24Q1, +35.5%/+114.4%/+155.1% year-on-year, in line with overall expectations. Among them, China showed strong resilience under the influence of a high base and external environment, which was basically the same as the previous year. The endogenous business in the Americas doubled year over year, and BF also maintained a high level of growth. Europe was affected by shipping and other factors, and delivery of some orders was delayed, but it still achieved steady year-on-year growth.

Delays in delivery of BF orders continue to weigh on profits. The 24Q1 company's gross margin was +2.95pcts year-on-year to 30.6%. As cost reduction progressed, orders increased, and production capacity was released, the loss reduction results were remarkable. The endogenous/BF gross margin was +1.6/+4.2 pcts, respectively. In 24Q1, the company's sales/management expenses ratio was +0.23/ -2.16pcts year-on-year to 7.7%/9.7%, respectively. BF expects Q1 to still be a drag on profits due to pre-investment of expenses but delays in order delivery (some raw materials need to wait for customers, etc.). The 24Q1 net profit margin was +2.44pcts year-on-year to 6.6%.

Investment advice: Adequate order reserves and focus on improving BF's profit. Looking ahead to the whole year, China is expected to return to normal after a high base in Q1, and steady growth is expected throughout the year. The European sales team has strong growth potential after upgrading, and the incentive target is anchored throughout the year. Although the growth rate of endogenous business+BF in the US may decline month-on-month, project reserves are sufficient, and it is expected to approach double digit growth driven by new customer expansion and new production capacity climbing. The company's organizational structure adjustments and sales team upgrades have achieved remarkable results in the past 2 years, focusing on the profit improvements brought about by BF order delivery. EPS is expected to be 2.09, 2.45, and 2.81 yuan in 24-26. Considering that the company's high investment period has passed, the dividend center is expected to increase compared to before. Maintain the target price of 39.5 yuan and maintain the “Highly Recommended” rating.

Risk warning: weak demand, phased overcapacity, policy changes, cost increases, etc.