Core views:

The company discloses its 2023 annual report. In 2023, we achieved revenue of 1.27 billion yuan (YoY +42.3%), net profit to mother of 50 million yuan, gross profit margin of 59.3% (YoY+9.5pct), and net profit margin of -4.0% (YoY+9.9pct). 23Q4 achieved revenue of 330 million yuan (YoY +34.9%), net profit to mother of 0.3 billion yuan, gross profit margin of 53.4% (YoY+12.1pct), and net profit margin of -10.4% (YoY+16.7pct).

By product, the shoulder, lower back, and head categories have grown significantly. In 2023, the company's revenue for eyes, neck, head, shoulder, lower back, and other products was -0%, -27%, +49%, +439%, +31%, and -17%, respectively. New product revenue for the whole year accounted for 59% of revenue.

Looking at online volume by channel, there is restorative growth in offline volume. In 2023, the company's online channel revenue was +69%, with direct sales, distribution, and e-commerce platform inbound revenue of +68%, +19%, and +16%, respectively, which is expected to be mainly driven by explosives sales; offline channel revenue was +41% YoY; of which direct sales and distribution revenue were +32% and +69%, respectively; ODM business revenue was -26% YoY. By the end of 2023, the number of the company's offline direct stores was 143 (a decrease of 20 compared to the previous year), and the number of offline distribution stores was 44 (an increase of 14 over the previous year).

The company disclosed its 2024 quarterly report. 24Q1 achieved revenue of 290 million yuan (YoY +28.6%), net profit of 0.2 billion yuan, gross profit margin of 62.8% (YoY+3.7pct), and net interest rate of 5.3% (YoY+6.1pct). According to financial reports, the company's offline direct store rates are decreasing month by month, and the profit ratio is increasing month by month. The open franchise model helps reduce rigid offline expenses. It is expected that offline profits will improve, and the online high-cost Douyin channel is also expected to improve.

Profit forecast and investment advice: The company is expected to achieve net profit of 1.1, 150, and 180 million yuan in 2024-26, reversing losses of +34% and +27% year-on-year respectively. Referring to comparable company valuations and the company's recovery flexibility & long-term growth, a 24-year PE 28x, corresponding to a reasonable value of 35.32 yuan/share, was given a “holding” rating.

Risk warning: The competitiveness of new products is weakening, market competition is intensifying, and channel development is not smooth.