Performance review
1Q24 results reached the upper limit of the forecast range, in line with our expectations
The company announced 1Q24 results: revenue of 808 million yuan, +28.2% year-on-year, net profit of 527 million yuan, +27.4% year-on-year, after deducting non-net profit of 528 million yuan, +36.5% year-on-year. The performance reached the upper limit of the forecast range (the forecast net profit to mother increased by 23%-29%), which is in line with our expectations. Looking ahead, we are optimistic about the broad growth space brought by the company's differentiated pipeline layout and excellent sales capabilities.
Development trends
1. Q1 Hi Sports sales picked up month-on-month, and the regenerative series continued to climb, driving a relatively rapid increase in revenue. 1Q24's revenue was +28.2% year over year, by product: ① Hi Sports: We expect Q1 revenue to achieve rapid year-on-year growth and further increase in month-on-month sales volume, reflecting the strong vitality of core single products under high repeat purchases and excellent product strength attributes; ② Regenerative Series: We expect Wet White Angel to continue the month-on-month sales trend, while market cultivation of new products such as Living Angel progresses steadily, and Q2 is expected to further contribute to the increase.
2. The optimization of marketing efficiency combined with the impact of market expenses on the basis of market expenses resulted in a significant year-on-year increase in deducted non-net interest rates.
1Q24's gross margin was -0.7ppt year over year, flat at 94.5% month-on-month. On the cost side, the sales rate was -2.1ppt to 8.3% year over year. We expect the company's continuous optimization of the marketing system due to the scale effect and further improving marketing efficiency; the management fee rate was -3.9ppt to 4.1% year over year, mainly due to the impact of Hong Kong stock listing expenses in the same period last year; and the R&D rate +0.2ppt to 7.1% year over year. At the same time, affected by the base of non-recurring investment income of 1Q23 billion yuan, the final 1Q24 net interest rate to mother was -0.4ppt to 65.3% year on year, deducted non-net interest rate +4.0ppt to 65.4% year on year, and profitability increased year on year.
3. Optimistic about the broad growth space brought by the company's differentiated pipeline layout and excellent sales capabilities. Looking forward to the future, we believe: ① Existing products: The advantages of core products are outstanding. As the company continues to strengthen the depth and breadth of customer coverage, Hi-Body is expected to continue to grow steadily. The second curve still has broad room for improvement in wet white penetration rate. The new product focuses on a tight outer outline and forms a differentiated solution with wet white. Currently, market cultivation and institutional coverage are progressing steadily, which is expected to contribute to increased performance in the future; ② Reserve pipeline: According to the company's announcement, medical-modified sodium hyaluronate gel containing polyvinyl alcohol gel microspheres (corrects back of chin shrinkage), type A Botulinum toxin is in the registration reporting stage; second generation Facial implants and lidocaine tinocaine cream are in clinical trials; simeglutide and deoxycholic acid injections are in the pre-clinical research stage, and subsequent implementation is expected to support medium- to long-term performance growth. Reiterate that they are optimistic about the company's broad growth space.
Profit forecasting and valuation
Maintaining the 2024-25 profit forecast, the current stock price corresponds to 24-26x P/E. Maintaining an outperforming industry rating and target price of 408 yuan, corresponding to 36x P/E in 24 years, with 42% upside.
risks
Risk of failure in product development under development; increased competition in the industry.