Key points of investment:
The company released its 2023 annual report, and the performance was in line with market expectations. 1) Revenue in '23 was 5.145 billion yuan, up 24.41% year on year; net profit to mother was 225 million yuan, up 953.37% year on year; net profit after deducting non-return to mother was 196 million yuan, up 16845.56% year on year. 2) 23Q4 revenue was 1,452 billion yuan, up 30.83% year on year; net profit to mother was 31 million yuan, up 551.37% year on year; net profit after deducting non-return to mother was 121 million yuan, up 210.55% year on year. The overall quarterly growth rate of revenue/net profit in '23 showed a month-on-month acceleration trend, confirming the company's ability to steadily seize opportunities and run smoothly against the backdrop of a gradual recovery in consumption. 3) Cash dividend of RMB 4.5 (tax included) for every 10 shares.
Gross margin remained flat in '23, and cost ratio optimization led to high net interest rates. 1) Profitability: In '23, the company's gross margin decreased by 0.1 pct to 57.4%, and net margin increased by 4 pct to 4.9%. 2) Expense rate: The sales expense ratio decreased by 1.3 pct to 41.2%, the management fee rate decreased by 0.4 pct to 8.1%, and the R&D cost rate decreased by 1.1 pct to 1.9%. 3) Operating capacity: Operating cash flow of 800 million yuan in '23, an increase of 241.4% year on year, and cash flow recovery is improving.
The medical and aesthetic sector grew at an accelerated pace in 23 years, and a scale advantage was formed. According to the company's announcement, medical and aesthetic revenue in '23 was 2.13 billion yuan, up 27.8% year on year, accounting for 41%, and gross margin increased 3.7 pct to 53.2%. By the end of '23, there were 38 medical and aesthetic institutions. The main medical and aesthetic institutions Milan Baiyu, Gao Yisheng, Crystal Skin Medicine, and Wuhan Wuzhou each had 4/1/30/2/1 institutions, with revenue of 10.1/1.5/4.0/3.4/220 million yuan respectively, accounting for 47.6%/7.1%/19.0%/16.0%/10.3% of the medical and aesthetic business revenue, with growth rates of 29.2%/27.6%/30.8%/24.8%/20.6%, respectively.
Crystal Skin, which is the main light medical and aesthetic service, is leading the growth rate. Milan Baiyu, a key hospital line, has grown at a high base, demonstrating its strength.
In February '24, Beijing Langzi Medical Management, a wholly-owned subsidiary of the company, planned to acquire 100% of the shares (about 150 million yuan) of Zhengzhou Jimei Medical Aesthetic Hospital from Bochen 9 and others in cash, and continue to implement the expansion strategy of external incubation+merger. According to the company's announcement, Zhengzhou Jimei Hospital was established in 2020 and has a business area of 6586 square meters. It is a second-class beauty specialist hospital.
Revenue for the full year of 22/23 was 0.69/106 million, net profit -1718/7.69 million, and net interest rate -25%/7%, respectively. The performance promise of Jimei, Zhengzhou, is not less than 10,54/122/15.29 million yuan after deducting non-net profit for 24-26 years. Furthermore, three medical and aesthetic institutions, including Kunming Han Chen, which were incorporated into the company in 22-23, have successfully completed their 2023 performance promises.
The apparel business grew by double digits in 23 years, and new retail became a key channel for performance growth. According to the company's announcement, 1) The brand image of fashion women's clothing has been fully upgraded, and e-commerce channels are developing rapidly. The revenue of the women's fashion business in '23 was 1.98 billion yuan, up 29.3% year on year, gross margin decreased 2.7 pct to 60.2%, e-commerce channel quality improved. Women's clothing online channel revenue in '23 was nearly 740 million yuan, up 45% year on year. The channel side integrated online and offline layout, consolidating the leading position in the clothing industry. 2) The green baby business has maintained a certain level of growth. Revenue in '23 was 980 million yuan, up 11.1% year on year, and gross margin increased 0.2 pct to 60.7%, accounting for 19.0% of revenue. The high-end brand “ETTOI” was promoted as the main force in the infant sector. Aidova entered high-end commercial centers and vigorously developed a “new retail” model.
The company is driven by the fashion womens+green baby+medical beauty troika. In the future, the company will continue to lay out through self-building+mergers and acquisitions to maintain an “increase” rating. Currently, the competitive landscape of medical and aesthetic institutions is scattered, and it is expected that they will concentrate on leading players in the future. The company will promote the 1+N strategy layout through chain and branding through endogenesis and extension. Maintaining the 24-25 profit forecast and adding a 26-year profit forecast, the company is expected to achieve net profit of 3.2/4/480 million yuan in 24-26, respectively, corresponding PE 22/18/15 times. Considering that the company's medical and aesthetic business is still expanding, there is plenty of room in the future to maintain the “gain” rating.
Risk warning: Stricter medical and aesthetic regulations; brand damage due to medical accidents; clothing business inventory risk; economic growth falling short of expectations; increased market competition; negative medical and aesthetic public opinion.