The 2023 results are in line with the previous forecast range, in line with our expectations: revenue of 5.145 billion yuan, +24.4% year over year after adjustment; net profit to mother of 225 million yuan (vs22 was 121 million yuan), in line with the previous performance forecast range (forecast net profit of 200-250 million yuan) and our expectations; deducted non-net profit of 196 million yuan (1.15 million yuan in vs22). Looking ahead, we are optimistic about the company's broad growth prospects from a regional medical and aesthetic leader to a chain-based national medical and aesthetic group.
Development trends
1. Medical and aesthetic revenue was +27.8% year-on-year in '23, and the clothing business grew rapidly online. ① Medical and aesthetic business: 2023 revenue of 2.13 billion yuan, +27.8% year over year, further increasing the revenue share by 1.1 ppt to 41.3%. Five major brands in the medical and aesthetic business developed collaboratively, including Milan Baiyu's revenue of 1.01 billion yuan, +29.2%; Jinghu/Gao Life achieved revenue of about 41/150 million yuan, +30.8%/+27.6% year over year; in addition, the company further expanded the medical and aesthetic market layout through the acquisition of Wuhan Han Chen and Wuhan Wuzhou. In 23, Han Chen (including Kunming and Wuhan) /Wuhan Wuzhou achieved revenue of 340 million yuan, accounting for 16%/10% of medical and aesthetic revenue.
② Clothing business: In 2023, the women's clothing and children's clothing business achieved revenue of 19.8/980 million yuan, +29.3%/+11.1%. The company continued to accelerate new retail transformation and improve the online+offline multi-channel operation model. In '23, Tmall, Vipshop, Douyin, and JD payment amounts were +57%/+52%/+45%/+101%, respectively. The share of women's e-commerce sales increased from 18% in 2020 to 37% in 2023.
2. Supply chain management brings cost optimization, and superimposed refined operation drives the flexible release of profits. The company's gross margin in '23 was +0.3ppt to 57.4% year on year. Among them, the gross margin of the medical/aesthetic/women's wear/children's clothing business was +3.3/-2.8/+0.2ppt to 41.3%/60.2%/60.7% year over year, respectively. We expect the increase in medical and aesthetic gross margin mainly due to the company's strengthened centralized procurement and inventory management, which led to a decrease in material procurement costs. On the cost side, the sales rate was -1.1 ppt to 41.2% year on year; management, R&D, and finance rates were -0.4/-0.9/-0.6 ppt to 8.1%/1.9%/1.7% year over year, mainly due to refined operation. Under the combined influence, the company's net profit margin for 23 years was +3.9 ppt to 4.4% year on year, and profitability recovered significantly year over year.
3. The “1+N” model helps endogenous epitaxial growth rapidly. The company is steadily advancing the expansion of the “1+N” model and continues to promote the collaboration and integration of group resources. The mergers and acquisitions of Kunming Han Chen, Wuhan Wuzhou, and Wuhan Han Chen all exceeded their performance promises in 2023; it also acquired 100% of the shares in Jimei, Zhengzhou in cash in February '24 to accelerate the national layout of the medical and aesthetic business. In addition, a number of extracorporal M&A fund projects have been steadily cultivated. According to the company's announcement, the total size of the seven medical and aesthetic mergers and acquisitions funds reached 2,837 billion yuan. We believe that after a successful climb, they are expected to be included in the consolidated statements, further enhancing the company's performance. We are optimistic about the company's broad growth prospects as a chain-based national medical and aesthetic group.
Profit forecasting and valuation
Maintaining the 2024-25 profit forecast, the current stock price corresponds to 24-25 23x/19x P/E. Maintaining an outperforming industry rating, considering the declining market risk appetite, the target price was lowered by 11% to 24 yuan, corresponding to 34x P/E in 24 years, with 48% upside.
risks
Increased competition; store expansion falls short of expectations; risk of medical malpractice; risk of inventory impairment.