Core views

After retroactive adjustments were made to Wuhan Han Chen and Wuhan Wuzhou, the company's revenue in 2023 was +24.41% year-on-year, of which the medical and aesthetic business was +27.8%, and endogenous extension simultaneously boosted revenue. At the same time, the company plans to distribute cash dividends of 4.5 yuan for every 10 shares, with a dividend payment rate of 88.46%. The company's net operating cash flow in 2023 is 804 million yuan, and the monetary capital in hand at the end of the year is 423 million yuan. The acquisition of a controlling interest in Jimei, Zhengzhou has been completed in 2024, and its own capital is sufficient for the acquisition of the extracorporeal incubation portion. Profitability was weak in 2022 due to external circumstances, and the company's profit improvement in 2023 marked an upward channel. The company has formed a pan-fashion business ecosystem focusing on the three major businesses of fashion, women's clothing, medical beauty, and green babies. The clothing and baby business is mature. Some medical and aesthetic companies are still in the cultivation period, which is a certain drag on profits. It is expected that subsequent losses from new institutions, high growth in new institutions, and steady growth in old institutions will continue to benefit the endogenous growth of the sector.

occurrences

The company announced its 2023 annual report: Wuhan Han Chen and Wuhan Wuzhou were combined during the reporting period, and retroactive adjustments are required. In 2023, the company achieved operating income of 5.145 billion yuan, +24.41% year-on-year, net profit attributable to mother of 225 million yuan, after deducting non-net profit of 196 million yuan (20.01 billion yuan after adjustment for the same period last year). It is proposed to distribute cash dividends of RMB 4.5 (tax included) to all shareholders for every 10 shares, with a dividend payment rate of 88.46%.

Brief review

The medical and aesthetic business is driven by endogenous epitaxial two-wheel drive. The stores are expected to continue to improve the company's medical and aesthetic business revenue in 2023, +27.75% after retroactive adjustment. Among them, Sichuan Milan Bai Yu achieved revenue of 590 million yuan, net profit of 61 million yuan, and a net profit margin of 10.3%. After the offline business resumed, revenue increased rapidly, with a year-on-year increase of 19.8%.

While mature stores continued to grow, the mergers and acquisitions also grew rapidly. Among them, Han Chen Medical & Aesthetic and Wuhan Wuzhou had revenue of 341/218 million yuan respectively, +24.8%/20.6% over the same period, and all three institutions fulfilled their performance promises. The company has successively participated in the establishment of seven medical and aesthetic mergers and acquisitions funds, with an overall fund size of 2,837 billion yuan. In the first quarter of 2024, the company completed the acquisition of a controlling interest in Jimei, Zhengzhou. By the end of the first quarter, the number of the company's medical and aesthetic institutions had grown to 39. Jimei, Zhengzhou, had a net profit of 7.69 million yuan in 2023, and the performance promise corresponding to 2024 was 10.54 million yuan. The company's model of gradual acquisition after in-vitro cultivation and incubation has been verified by many businesses. In the endogenous segment, the company added 7 new businesses in 2023. After upgrading and opening in 2023, Shenzhen Milan Baiyu had a revenue scale of 90.61 million yuan (23H2 revenue of 58.98 million yuan), with a net loss of 63.92 million yuan (23H2 loss of 33.52 million yuan). Short-term new institutions are still in the development period. Refer to Gaoxin Milan's 3rd year, which is expected to gradually drive an improvement in overall medical and aesthetic business profits. The gross profit margin of the medical and aesthetic business in 2023 was 53.15%, +3.27pct, of which the non-surgical gross profit margin was 54.08%, +4.95%, and its revenue share further increased to 83.69%.

Fashion women's clothing and green baby restoration grew. In 2023, the company's women's clothing business segment achieved revenue of 1,984 billion yuan, +29.27% year-on-year, and the e-commerce division's omni-channel comprehensive payment amount increased by more than 54% year on year: Among them, the main brand Langzi achieved revenue of 1,420 billion yuan, +29.94% over the same period last year, and the growth rate was impressive. As of the end of 2023, the company's women's clothing business had 599 stores, including 438 self-operated stores, 107 distribution stores, and 54 online stores. The company's 23Q3 inventory digestion was remarkable, and the structure continued to be optimized. Women's clothing operating profit of 147 million yuan (2022 - 39 million yuan) improved significantly in the 2023 segment report. In 2023, Green Baby achieved revenue of 975 million yuan, a year-on-year increase of 11.13% and a gross profit margin of 60.66%. Korea Baby Company has further increased its market share and consolidated and enhanced the company's position in the Korean baby brand market. In terms of domestic infant business, the company changed its main brand from Acabon to Aidova's high-end children's clothing brand, reducing cross-border procurement in South Korea and increasing the proportion of self-made products. In the 2023 segment report, the operating profit for infants and children was 97 million yuan, the operating profit margin was 9.98%, +0.7pct.

Profit forecast and investment suggestions: Considering the addition, the company is expected to achieve net profit of 3.00/364/437 million yuan in 24-26, corresponding PE of 24/20/16 times, maintaining an increase in holdings rating.

Risk analysis

Medical accidents: Since there are differences in patient physique, and the quality of surgery is affected by various factors such as physicians' quality, diagnosis and treatment equipment, and quality control level, etc., all types of plastic surgery institutions inevitably have certain medical risks; risk of market competition: there is a risk of rapid changes in consumer demand in the middle and high-end women's clothing market; the company has initially completed basic accumulation of core resources and capabilities such as advanced medical and aesthetic technology in Korea, high-end domestic medical and aesthetic brands, and standardized management capabilities, but if it is not possible to maintain or improve its original advantages in increasingly fierce market competition, the company's medical aesthetic business will face a certain degree Risk; the company's profit was affected by the long store cultivation period: the company's medical and aesthetic stores developed together with the endogenous+fund cultivation model. New endogenous stores in the short to medium term may have a long nurturing period, which affects the company's profit margin. For in vitro training institutions, if they fail to reach a good profit level, it will also have a certain impact on the company's outreach speed.