Description of the event
In 2023, the company achieved operating income of 8.905 billion yuan, a year-on-year increase of 39%; net profit to mother was 1,194 billion yuan, an increase of 46%; net profit after deducting non-return to mother was 1,174 billion yuan, an increase of 49% over the previous year. 2024Q1 achieved operating income of 2.82 billion yuan, a year-on-year increase of 35%; net profit to mother was 303 million yuan, an increase of 46%; net profit after deducting non-return to mother was 292 million yuan, an increase of 47.5% year-on-year.
Incident comments
The offline growth rate turned positive in 2023, and the main brand grew for two consecutive years. Looking at the full year of 2023 by channel, online/offline growth was 43%/7% respectively. The online high level stabilized, and after the offline level reached a low level, the growth rate began to correct. By brand, the main brand Pereya's revenue increased 36% year over year, maintaining a high increase for two consecutive years, with further breakthroughs in category performance. The main brand Tmall facial cream ranking rose from 9th to 1st, mask rose from 4th place to 2nd place, and the essence category continued to lead; Caitang/OR/Yuefuti increased 75%/71%/62% year over year. Caitang pioneered the color category. The new three-color blush plate ranked 1st in the Tmall blush category. On the profit side, gross margin increased by 0.23 percentage points for the whole year, mainly due to an increase in the share of large single products and a further increase in direct management; sales rates increased by 0.98 percentage points, which are expected to come from product promotion, new brands, offline channels, and overseas channel investment; and management/R&D/finance rates were basically stable. In addition, asset impairment losses of 108 million yuan were confirmed throughout the year, a year-on-year narrowing of about 56.79 million yuan, and the company's profitability was improving throughout the year.
The 2024Q1 brand scale effect is evident, and profitability has increased. Looking at the revenue side by category in the first quarter, the skincare/makeup/care category increased by 32%, 56%, and 41%, respectively, and the overall revenue growth rate was 35%. On the profit side, gross margin for the single quarter was 70.1%, a slight increase year on year; the sales expense ratio increased 3.6 percentage points year on year, and the management expenses ratio and R&D expenses ratio all had savings, down 1.4 and 1 percentage point year on year, respectively. Combined with a decrease in asset impairment losses and an increase in other earnings, profitability improved, and net interest rate increased 0.74 percentage points year over year. We believe that thanks to the company's brand effect being raised to a new level, the scale effect of various fixed cost investments continues to show.
In the face of rapid changes in the external market environment, the company's organizational strength continues to develop strong core competitiveness. Continue to consolidate and deepen the refined operation management system with “R&D, product, content and operation” as the main line. Complementing the construction of a self-driven organization with “culture-strategy-mechanism-talent”. Channel side: Respond flexibly to market developments and changes, rapidly deploy and invest in emerging channels, and explore overseas development opportunities. Product side: Keen insight into consumer needs in the market, based on R&D strength and quick response to internal organizational capabilities, continue to enhance the company's large single product strength, continue to build and optimize the core large product matrix, strengthen brand tension, and enhance brand vitality. Brand side: Build a self-driven agile organization, serve a prototype second-tier brand hierarchy and continuously incubated brands, and form a brand matrix modeled after the fields of skincare, makeup, and personal care. Also, by building our own MCN team and content marketing team, we strengthen the internal circulation ecosystem and achieve external ecology to serve the Pereyal brand.
Investment advice: We believe that Perea, the company's main brand, is gradually moving from large single product development to the stage of brand power formation. The formation of brand power is the foundation for the company to maintain an excellent level of profit during the current stage of industry differentiation. However, sub-brands such as Caitang, OR, and Yuefuti still have a lot of room for growth, and are expected to enjoy the reuse and spillover of the various capabilities of the main brand. The shaping of a multi-brand matrix is worth looking forward to. EPS is expected to be 3.82, 4.60, and 5.67 yuan respectively in 2024-2026, maintaining a “buy” rating.
Risk warning
1. Increased competition in the industry;
2. The risk of incubation of new brands, new categories and other projects.