Incident: The company released the 2023 annual report and the 2024 quarterly report. In 2023, it achieved revenue of 3.58 billion yuan, +42.9% year on year; realized net profit of 280 million yuan, +32.4% year on year; realized net profit without return to mother of 280 million yuan, +43.0% year on year. 23Q4/24Q1 achieved revenue of 1.08/950 million yuan, +50.1%/35.5% YoY; realized net profit attributable to mother of 100/60 million yuan, +165.5%/114.4% YoY; realized net profit deducted from non-mother of 100.60 million yuan, +178.0/ 155.1% year over year.
Endogenous income has increased significantly, and the American region has entered restorative growth. 23H2 endogenous business/consolidated statement BF achieved revenue of 1,64/40 billion yuan, and endogenous business increased by +17.4% year-on-year, and accelerated month-on-month growth. Looking at endogenous business by region, 23H2 China/Europe/America/America/other regions achieved revenue of 10.5/2.7/2.1/110 million yuan, +28.7%/+24.5%/-36.2%/+164.2% year-on-year respectively. China accelerated month-on-month, and the company's “high-value customer share increase” strategy achieved remarkable results; the American region experienced negative growth due to inventory. The 24Q1 company maintained high growth and is expected to contribute to a high growth rate at a low base after the impact of inventory removal in the Americas ends.
Endogenous net interest rates continued to rise, and BF's short-term losses increased due to the commissioning of new production lines. The gross margin of the 23Q4/24Q1 company was -0.9/+2.9pct to 30.6% year-on-year. It is expected that the main reason for the decline in gross margin in 23Q4 was BF and the low gross profit margin. The gross margin of endogenous business continued to increase under optimized pricing strategies and continuous cost reduction and efficiency; 24Q1 company's gross margin continued to improve. The sales expense rate/management expense ratio in 2023 was +2.6/-2.3 pct to 7.75%/9.79%. Employee remuneration and marketing expenses increased significantly in sales expenses. It is expected that the main reason is to influence the expansion of the sales team and increase the share of market investment expansion; the management fee rate decreased significantly due to the decline in one-time mergers and acquisitions expenses and the improvement in operating efficiency. In 24Q1, the company's sales/management/R&D/finance expense ratios were +0.2pct/-2.2pct/level/flat to 7.7%/9.7%/3.2%/1.7%, respectively, and the management expense ratio continued to be optimized.
According to our estimates, 23Q4 and 24Q1 benefited from cost reduction and efficiency, and the company's endogenous net interest rate increased year-on-year; BF (taking into account surface-level amortization expenses) 23Q4/24Q1 lost 5353/30.3 million yuan, an increase in losses compared to 23Q3, which is expected to be mainly affected by the commissioning of new production lines and increased amortization expenses.
Net interest rates for endogenous businesses are expected to remain high, and rising production capacity for personal care and gummies will improve BF profits. Currently, the impact of inventory removal in the American region is over, and is expected to usher in restorative growth throughout the year; China is expected to maintain a high growth rate by deepening high-value customers and seizing emerging opportunities; the dividends of sales force and channel expansion in Europe are expected to continue to be realized, and the revenue side is expected to maintain high growth throughout the year. On the profit side, endogenous net interest rates are expected to remain high under the cost reduction and efficiency strategy. BF's profit performance is being suppressed by the commissioning of new production lines in the short term, and profitability may recover as production capacity climbs, contributing to profit elasticity.
Investment advice: The company is expected to achieve net profit of 4.0/4.9/580 million yuan in 2024-2026, +40.7%/23.0%/19.4% year-on-year. The current stock price corresponds to PE of 17/14/11x, maintaining the “gain” rating.
Risk warning: demand recovery falls short of expectations, subsidiary profit improvement falls short of expectations, raw material prices fluctuate.