Description of the event
2024Q1 achieved revenue/net profit/net profit after deduction of non-net profit of 765/1.03/98 billion yuan, an increase of 46%/28%/31%.
Incident comments
Q1 Revenue exceeded expectations, mainly due to the further acceleration of e-commerce, and continued high growth in offline peripherals. Q1 The company's revenue also increased 46%, and the Liberty Point brand also increased 55%. Among them, the Big Health series grew even better. By channel: 1) E-commerce: +151%, accelerating again on the high growth trend (same increase of 102% in 2023). Among them, the Douyin channel continued to lead the high growth rate, accounting for about half of e-commerce revenue, and continued to rank 1st in the brand ranking; Tmall also had a significant month-on-month increase, accounting for more than 20% of e-commerce revenue, and rose to 3rd place in the brand ranking. 2) Offline peripherals: +52%, along with management optimization and rapid resource inclination (2023Q4 about +60%). 3) Five core provinces: Nearly double-digit growth is estimated. Among them, Yungui and Shaanxi performed better, and Sichuan and Chongqing were disrupted by the phased shortage of new products.
The increase in Q1 profit margin exceeded expectations, and the share of the Big Health series increased, driving the improvement of gross margin. Q1 gross margin +7.5pcts to 54.4%, the main reason: 1) the share of profitable Free-point brands (57.7% gross margin in Q1) increased 4.9pcts to 91.6%; 2) Driven by factors such as the increase in the share of major health series such as probiotics, the Q1 Free-Point gross margin increased 5.8 pcts. The Q1 sales/management/R&D/finance expense ratio was +11.6/-1.2/-0.5/-0.1 pcts. The company continued to invest heavily to drive significant growth. Q1 recorded sales expenses of 263 million yuan, an increase of 121% over the same period, and a slight increase over the previous month, which is related to the accelerated expansion of e-commerce platforms such as Douyin and peripheral provinces. The Q1 attribution/deduction non-net interest rate was only 1.9/1.5pcts lower in the case of a high base in the previous period, and the net profit margin of 13.4% is at a high level in recent years. Looking at the split channel: The estimated profit improvement in Q1 peripheral provinces is obvious, related to the company's strategy of prioritizing major health products and optimizing the product structure beyond expectations; under the negative influence of comprehensive product structure optimization and the increase in the share of Douyin channels, it is estimated that e-commerce channels can still maintain a break-even level, showing an improvement trend from month to month. Earnings in the core region are expected to continue to improve, driven by the elimination of phased shortages of new products.
E-commerce channels: Contributions to revenue acceleration have spilled over from Douyin to e-commerce and offline channels. High-quality products & operations are the key to high growth. The 5-year CAGR of the company's e-commerce revenue in 2019-2023 reached 63%, which is significantly superior to the industry. The core is that the company focuses on content marketing and clear customer base positioning to seize the dividends of the Douyin platform, and spurred platforms such as Tmall, JDong/Pinduoduo to speed up platforms such as Tmall, JD, and Pinduoduo through its exposure form, and there is still plenty of room for improvement in the future. This year, while maintaining a high level of investment in the Douyin platform, the company will further optimize its marketing strategy, shift from being driven by brand marketing to three drivers of content, operation, and marketing, and increase marketing and content promotion to improve overall marketing efficiency; and continue to strengthen Big Health marketing on the Douyin platform (2023Q4 Douyin platform accounts for about 50% of big health products).
Offline channels: The core area is shoucheng, peripheral regions break through inflection points, and Guangdong/Hunan and other provinces lead the volume. The company's position in Sichuan, Chongqing and Yungui and Shaanxi regions is stable, while there is still considerable room for expansion in peripheral regions (accounting for 19% of offline revenue in 2023). In 2023, the company selected the three provinces of Guangdong, Hunan and Hebei to break through first, and have achieved an inflection point in operation. In particular, Guangdong, Hunan and other provinces are expected to lead the volume. This year, the company will add key efforts in Hubei and Jiangsu regions to continuously improve the national layout. At the same time, the company is further deepening new channels with growth dividends, such as instant retail channels and convenience store systems in East China and South China regions.
The company's revenue continues to grow at medium to high levels, and the share increase is highly certain. Deepening channel expansion and regional expansion drives continuous growth; product-side quality improvement and promotion go hand in hand, focusing on large probiotic products to improve the product matrix, and promote a continuous increase in the unit price of tablets. On the profit side, along with the rapid increase in the share of Big Health series in non-Douyin channels, it is expected to exceed expectations. The estimated net profit for 2024-2025 is 3.2/410 million yuan, corresponding to PE 27/21x; the 2023 dividend rate is 99.1%, corresponding to a dividend rate of 2.7%. Maintain a “buy” rating.
Risk warning
1. The competitive pattern of the industry deteriorated; 2. The company's channel expansion fell short of expectations.