Introduction to this report:

The company's performance in 2023 was in line with expectations. Net profit after deducting non-net profit continued to rise in 24Q1, and apparent profit declined due to hedging losses. Continued optimism about high-margin brands represented by Ifidan will drive the company's high performance growth.

Key points of investment:

Investment advice: Maintain the 2024-25 EPS forecast of 1.00 and 1.19 yuan, add the 2026 forecast of 1.43 yuan, maintain the target price of 23.1 yuan, and increase the holding rating.

The performance was in line with expectations, with a high increase in net profit after deduction in 24Q1. In 2023, the company's revenue/attribution/deduction of non-net profit of 4.493/2.94 billion yuan was -5%/+135%/+181% year-on-year, in line with previous performance forecasts. 24Q1 revenue/attribution/deducted non-net profit of 10.32/0.40/0.53 billion yuan, -1%/-23%/+45% year-on-year. The high increase in deducted non-net profit is expected to be mainly due to the high increase in the performance of its own brand Ifidan, and the decline in return to mother's profit is mainly due to hedging losses of 14.88 million yuan. In 2023, the company's gross margin was +5.32pct to 58.44%, mainly due to the continued increase in the share of high-margin brands in the Ifidan and agency business; sales/management/R&D expense ratios of -1.70/+1.13/ -0.18pct to 41.35%/5.24%/1.70%, respectively; continuous optimization of operating efficiency; and net cash flow from operating activities of 261 million yuan, a significant increase of 1380% over the previous year.

The proportion of water cream and cream has increased, and the Douyin channel has increased. By category, the company's revenue for water cream/mask/brand management services in 2023 was 35.05/8.24/108 million yuan, -0.2%/-9.0%/-60.4%. Due to the steady performance of agent brands, the explosion of Ifidan essential water and other products in its own brands led to an increase in the share of water cream to 78%. By channel, in 2023, the sales revenue of Aotao/Douyin was 1,396/1,134 billion yuan, -26.70%/+60.56% year-on-year. Douyin led the growth.

With the formation of a multi-brand group, Ifidan is expected to lead the growth of performance. The company promoted the parallel development of the two major business systems, its own brand system and the Mizuyang International CP system, and gradually completed the transformation into a beauty group. Among the existing brands, high-end brands such as Ephidan and PA are expected to lead the growth of performance in the future.

Risk warning: The industry is declining, new brands fall short of expectations, and the recovery of consumption power falls short of expectations.