[EVENT:
The company released its annual report for 2023 and the first quarter report for 2024.
Comment:
Product structure optimization led to profit improvement. 24Q1 net profit after deducting non-net profit increased 45% year on year. In '23, the company achieved operating income of 4.493 billion yuan, a year-on-year decrease of 4.86%, net profit to mother of 294 million yuan, a sharp increase of 135.42% over the previous year, and net profit after deducting non-return to mother of 273 million yuan, an increase of 180.8% year on year.
The increase in profit was mainly due to an increase in the share of high-margin brands and an increase in management efficiency. In terms of profitability, the company's gross profit margin in 2023 was 58.44%, up 5.32pct year on year, net profit margin 6.65%, up 4.05pct year on year. The company's expenses were well controlled in '23. The sales expense rate/management fee rate/R&D expense ratio were 41.35%/5.23%/1.71% respectively, down 1.7/up 1.13/0.18pct, respectively. The increase in the management expense ratio is mainly due to the transformation of the Shuiyang intelligent manufacturing base, and depreciation expenses have increased. The 24Q1 company achieved operating income of 1,032 billion yuan, a year-on-year decrease of 1.36%, a year-on-year net profit of 40 million yuan, a year-on-year decrease of 23.25%, and net profit after deducting non-return to mother of 53 million yuan, an increase of 44.67% over the previous year. Non-profit and loss are mainly gains and losses on changes in fair value resulting from holding and disposing of financial assets and financial liabilities. The 24Q1 company's gross margin was 61.34%, a sharp increase of 7.63 pct year on year, and the net margin was 4.13%, down 1.09 pct year on year.
The global growth rate of EDB23 exceeded 100%, and the renewal of Imperial Clay Square is imminent. The CP Business Steady Development Company adheres to the “dual business-driven strategy of private brand and CP brand” to build a multi-level private brand matrix with luxury, middle class, national trend, and many diversified categories. In terms of independent brands: (1) EDB: The global growth rate exceeded 100% in '23, and the global GMV exceeded 1 billion. In terms of products, Super CP and anti-aging essence and sunscreen contribute to core revenue, and it is expected that in 24 years, it is expected that Rich Face Cream and Gaoke Shan Zhenjin series will be promoted to further improve the product matrix. In terms of channels, adhering to the online and offline multi-channel layout, the first domestic counter was launched in Wulin Yintai, Hangzhou in '23, further developing channels such as luxury department stores and luxury hotels and SPA. In terms of marketing, we will continue to strengthen the brand's luxury skincare attributes, and it is expected that in '24, we will use the Paris Olympics to further enhance its global influence. (2) Imperial Clay Shop: It has been in the brand adjustment period for 23 years, focusing on mental correction and product system iteration, and has completed various core ingredient reserves of black ginseng extract and PQQ. This year, the new positioning of the “2+3 Oriental Skin Formula” is expected to usher in a comprehensive upgrade. (3) Big drop of water: Continuing to cultivate the mentality of staying up late and achieving more than double digit growth in 23 years. CP brand side: 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 superior brands.
Investment advice and profit forecasting
The company's own brand+agency brand business is two-wheel drive, focusing on high-profit brands to increase resource preferences. The main brand, EDB, is growing well, and Imperial Clay Shop and small proxy brands continue to adjust and optimize. In 2024-2026, we expect the company to achieve net profit of 393/4.62 billion yuan, EPS of 1.01/1.19/1.37 yuan and PE18/15/13x respectively, maintaining a “buy” rating.
Risk Alerts
The risk of increased competition in the brand market, and the risk of new brand incubation falling short of expectations.