Core views:
Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 4.493 billion yuan, -4.86% year-on-year, and realized net profit of 294 million yuan, +135.42% year-on-year, slightly lower than the median range of previous performance forecasts. 24Q1 achieved revenue of 1,032 billion yuan, -1.36% year over year, net profit to mother of 40.1 million yuan, or -23.25% year over year. The biggest year-on-year decline in profit was mainly due to high losses on closed forward foreign exchange contracts, which realized net profit of 53.33 million yuan without return to mother, +44.67% year over year. Non-recurring profits and losses were mainly due to fair value changes of 16.65 million yuan due to the company's financial assets and financial liabilities.
By category, the company's revenue for water cream in '23 was 3,595 billion yuan, -0.20% year on year, accounting for +3.64pp to 78.01% year on year; mask revenue was 824 million yuan, -9.00% year on year, accounting for -0.84pp to 18.33% year on year. By channel, in '23, the company's online channel achieved revenue of 4,080 billion yuan, or -4.40%, accounting for 90.80% of revenue, of which 1,396 billion yuan, or -26.70% year over year, Douyin sold 1,134 billion yuan, or +60.56% year over year.
The gross margin increased, and the expense ratio declined steadily during the period. The company's 23-year gross margin was +5.32pp to 58.44% year over year, and the net margin was +4.05pp to 6.65% year over year, mainly due to the further improvement of the company's multi-level brand matrix system, further optimization of the overall business and product structure, and the share of high-margin brands continued to rise; sales expenses ratio -1.70pp to 41.35%; management expenses ratio +1.13pp to 5.24% year over year; R&D expense ratio -0.18pp to 1.70% yoy; financial expenses ratio +0.63pp to 1.44% yoy, Mainly the increase in interest costs on convertible bonds. Taken together, the company's net interest rate for the year 23 was 6.5%, +3.9 pp compared to the previous year.
Profit forecasting and investment suggestions: The company continues to implement the dual technology empowerment of “R&D empowers brands, digital empowers organizations” and adheres to the “dual business-driven development strategy of its own brand and CP brand”.
The company's net profit for 24-26 is estimated to be 3.9, 4.9 billion yuan, and 60 billion yuan respectively. Referring to comparable company valuations, considering the development potential of the company's dual business, the company is given 25 times PE in 24 years, corresponding to a reasonable value of 24.93 yuan/share, maintaining a “buy” rating.
Risk warning: Industry sentiment declines; market competition intensifies; new product development falls short of expectations.