Incident: The company released its annual report for the year 23 & quarterly report for the year 24. The company achieved operating income of 4.493 billion yuan/yoy -4.9%, net profit of 294 million yuan/yoy +135.4%, after deducting net profit of 273 million yuan/yoy +180.8%; looking at Q4 alone, 23Q4 achieved operating income of 1,116 million yuan/yoy -19.1%, net profit to mother of 114 million yuan/yoy +1804.4%, net profit of non-return to mother of 77 million yuan. The 24Q1 company achieved revenue of 1,032 million yuan/yoy -1.4%, net profit of 40 million yuan/yoy -23.3%, after deducting net profit of 53 million yuan/yoy +44.7%.

Interested e-commerce has achieved impressive growth rates, and EDB's subsidiaries have excellent profitability. In '23, the EDB subsidiary achieved revenue of 285 million yuan and net profit of 73 million yuan, corresponding net interest rate of 25.71%, 23H2 net interest rate of 26.77%, an increase of 2.83 pct over 23H1, and stable profitability. 1) By product: In 23 years, water cream products achieved revenue of 3,505 billion yuan/yoy -0.20%, gross margin of 55.18% /yoy+6.34pct, mask achieved revenue of 824 million yuan/yoy -9.00%, gross margin of 68.96% /yoy+11.10pct. The increase in the proportion of high-margin brands drove a significant increase in gross margin in core categories; 2) By channel: In online channels, the core e-commerce platforms Taoxie/Douyin achieved revenue of 1,396/11.34 billion yuan respectively. /+60.56%, Douyin's e-commerce interest is strongly driving the growth of online channels.

The increase in the share of high-profit brands promoted continuous optimization of gross margin, and the 24Q1 increase in cost investment continued to focus on brand asset accumulation. 1) 23 years: Simultaneous optimization of gross margin and period expense ratio promotes improved profitability. The 23-year gross margin/period expense ratio/net interest rate was 58.44%/49.73%/6.65%, respectively, +5.32/-0.11/+4.05pct, respectively. The gross margin and cost side optimization led to a marked improvement in net interest rate. Sales/management/finance/R&D expense ratios were 41.35%/5.24%/1.44%/1.70%, respectively, -1.70/+1.13/+0.63/-0.18pct, respectively. Increased cost efficiency control promoted sales rate optimization. 2) 24Q1: Increased marketing investment continues to consolidate brand power. 24Q1 gross margin/period cost ratio/net margin was +7.6/+5.4/-1.1 pct, respectively. The gross profit side continued the growth trend, and high-end products still played a significant driving role in gross margin growth; in terms of rate side splitting, sales/management/financial/R&D expense ratios were +5.1/+1.5/-0.6/-0.6pct, respectively. The increase in sales expenses may be due to the increase in the company's related marketing expenses. For example, in March, Yifidan officially announced sunscreen spokesperson Wu Lei, and promoted high-end “anti-aging” sunscreen protection, anchoring and consumer protection Decay demand, according to grizzly pig According to the data, from March/April to the 22nd, the proportion of sunscreen products on the Ifidan Douyin channel reached 31.4%/37.2%, respectively. Spokespersons promoted a rapid increase in product awareness. Of the non-recurring profit and loss in 24Q1, profit and loss due to factors such as changes in the fair value of financial assets/liabilities was -0.17 billion yuan, of which: investment income - 0.3 billion yuan, mainly due to losses in closed forward foreign exchange contracts and income from fair value changes of +0.13 billion yuan. It can be expected that subsequent non-recurrent factors will ease and continue to grow at high quality.

Continue to promote the “private brand+CP brand dual business-driven” development strategy. The company continued to accumulate brand assets and initially built a multi-level brand matrix of luxury, middle class, national trend, and many diversified brands. In terms of its own brand: ① Yifidan: Continuing to strengthen brand systematization, introducing product lines such as the Zhenjin series and the Sakura series on top of existing products such as super masks to improve the product matrix and promote the penetration of high-end people; ② Onmyo Shop: brand renewal is underway, looking forward to subsequent upgrades and releases; ③ Big Water Drop: Continuing to cultivate the mentality of staying up late, and achieving the TOP1 for all categories of acne removal essences on the Xiaohongshu platform. Leading the way, we look forward to increasing our ability to contribute to profits in the future. In terms of CP brands: At present, a “1+5+N” hierarchy has been formed, and cooperation with Johnson & Johnson has entered a steady development path, covering the five major categories of skincare, makeup, personal care, perfume, and health food. The segmented brand matrix layout has been continuously improved, and the focus continues to focus on dominant brands.

Profit forecast: The company has a two-wheel drive with its own brand and CP brand. Resources are tilted towards high-profit brands to promote the company's development and quality, and superimposed cost efficiency control optimization drives profit improvement; as the impact of subsequent non-recurrent factors is mitigated, core brand renewal is completed, and marketing investment continues to establish brand assets, and the company is expected to achieve better growth based on a unique model. We forecast that the company's net profit for 2024-2026 will be 390/4.61/521 million yuan respectively, up 33%/18%/13% year on year, and corresponding PE will be 19/16/14X, respectively.

Risk factors: Interest in e-commerce traffic dividends declined, market competition intensified, and brand renewal results fell short of expectations.