Incident: Recently, the company exchanged views on the 2023 annual business situation, the 2024 business plan, and the E-cube Bionic efficiency technology platform.
E-cube bionic efficiency technology platform unveiled, with high R&D investment and long-term layout. The company's E-cube bionic efficiency enhancement technology platform was recently unveiled to thoroughly explore the absorption characteristics of nutrients, improve the nutrient content, activity and absorption rate of products, achieve controllable standards and cost control, and ultimately enhance product science, effectiveness, and R&D differentiation. We believe that consumer education in the health products industry is gradually deepening. In the future, under the polarization of products focusing on functionality and FMCG products, CDMO companies place high demands on product efficacy and SKU richness. The company strictly controls product quality and maintains high investment in R&D. It is expected that the efficacy and differentiation of products will continue to improve in the future, strengthening the company's medium- to long-term competitiveness and bargaining power.
Differentiation is strong, and the global expansion strategy is clear. Currently, the company's business covers emerging markets such as China, America, Europe and Asia Pacific. The regional strategies for 2024 are as follows: China region: continue the “increase the pocket share of high-value customers” strategy to develop more and penetrate high-value customers; at the same time, deepen the national and mid-waist regional customer chain customer layout, and expand modern channels, maternal and child beauty channels, etc. America region: Develop emerging markets such as retailers and e-commerce on the basis of continuing the big customer strategy. Combining the strengths and resources of BF's local factories, we integrate sales and supply chains to promote the development of the gummy candy and personal care business. Europe: Under the big customer strategy, focus on increasing the share of leading customers and expanding new markets such as Southern Europe, Eastern Europe, and the Middle East. Emerging markets such as Asia Pacific: Currently, the base is low and growing rapidly. Through active participation in exhibitions, summits, etc., brand awareness is raised, new customers are developed, and medium- to long-term incremental markets are cultivated. Overall, the company's current production capacity has achieved a global layout, a clear market expansion strategy, and continued expansion and upgrading of the sales force, which is expected to expand its share around the world.
Continuing to reduce costs and increase efficiency, BF's business situation is improving. In 2023, the company achieved continuous cost reduction through pricing strategy adjustment, product structure adjustment, procurement collaboration, and lean production. Combined with management cost optimization, the net interest rate of endogenous business increased significantly by 4.7 pct to 13.2% over the same period last year. Cost reduction and efficiency measures will continue to advance in 2024, and net interest rates are expected to remain high. It also stated that the BF factory was affected by the commissioning of new production lines for personal care and gummies, and short-term profitability is under pressure, but current operations continue to improve. Profitability is expected to improve as production capacity climbs, and profitability is expected to improve. If losses are turned into profits in the future, it will contribute to profit side flexibility.
Investment advice: We believe that the results of the company's series of strategic adjustments, organizational changes, lean management, cost reduction and efficiency measures have continued to be realized since the second half of 2023, and endogenous net interest rates have increased significantly. The company's internal incentives are optimized, and the 2024 performance is expected to maintain high growth under the dual goals of equity incentives and employee stock ownership plans. We expect the company 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 18/14/12x, maintaining the “gain” rating.
Risk warning: demand recovery falls short of expectations, subsidiary profit improvement falls short of expectations, raw material prices fluctuate.