Matters:
The company released its 2024 quarterly report. In 24Q1, it achieved total operating income of 2.65 billion yuan, a decrease of 14.9%, net profit to mother of 730 million yuan, a decrease of 29.4%, after deducting net profit of 710 million yuan, and a decrease of 28.7%.
Commentary:
Under the high base, revenue pressure continues, and online channels have declined significantly. The 23Q1 pandemic catalyzed a rise in demand for health care. The company's revenue rose 36.3% year on year to 3.11 billion yuan, a record high. As demand returned to normal in 24Q1, it also fell 14.9% to 2.65 billion yuan under a high revenue base. By brand, the main brand/Jianliduo/Life-Space domestic products/LSG overseas business were -17.7%/-2.1%/-29.5%/-5.1%, respectively, to 15.5/3.7/1.2/250 million yuan. Jianliguo (23Q1 protein powder, vitamins, and domestic probiotics are typical hot selling categories) and LSG performed smoothly due to a relatively low foreign factor base. By channel, offline revenue also fell by about 7.55% to 1.72 billion yuan, while online revenue also fell 26.5% to 901 billion yuan under a high online base.
Brand investment has increased and dominated, the superimposed scale effect has weakened, and performance has declined significantly. Due to the decline in the share of online channels and the weakening scale effect, 24Q1 gross margin also decreased by 0.4 pcts to 69.9%. The company adheres to a strong brand strategy. Sales expenses increased from 765 million yuan to 826 million yuan, and the cost ratio also increased by 6.6 pcts to 31.2%. The management/R&D expense ratio was associated with an increase of 1.4/0.3 pcts to 4.7%/1.2%, respectively, or a reduction in scale effects due to a decline in revenue. Additionally, the effective tax rate was reduced by 1.2pcts to 19.8%. Overall, the 24Q1 company achieved a net interest rate of 27.5%, a decrease of 5.7 pcts; net profit to mother fell 29.4% to 730 million yuan, which is in line with the performance forecast center.
During the year, the pace was low and high, costs remained high, and medium- to long-term competitiveness was steadily strengthened. In terms of pace, the first is that the base numbers were high and low last year. Second, the upgraded products of Jianliduo and protein powder are expected to be gradually launched from 24Q2. After enhancing efficacy and differentiating between ingredients and channel specifications and pricing, single product sales are gaining momentum. It is expected that the sales side will gradually improve during the year. On the profit side, under the trend of online and lengthening the industry, the company's “multi-brand, omni-channel, all-category” strategy distributes resource investment to a certain extent, and short-term sales expenses are expected to remain high. In this context, the company promotes brand promotion and controls investment efforts through product formulation upgrades, cost structures, and establishes main brands and large single product divisions to optimize full-cycle management, and focus on shaping medium- to long-term differentiation advantages. It is expected that with the establishment of brand mentality in the medium to long term, profit optimization is expected to be gradually realized, and if the regulatory level further regulates the threshold, it will benefit leading development.
Investment advice: Continue under pressure in the short term, wait for reforms to be implemented, and maintain the “recommended” rating. The company's performance declined significantly due to the high base in 24Q1 and the increase in cost investment. It is expected that the cost investment will remain high during the year, and the operating pace will decline or gradually improve with the base. Looking at the medium to long term, the company will continue to infiltrate the demand for beneficial health care. Under the trend of industry longevity, the company is gradually advancing along the “difficult but correct” strategic direction. It is recommended to wait for the results of the brand reform to be realized and profits improved. Considering the large decline in revenue and high brand cost investment under the Q1 high base, we lowered the 24-26 EPS forecast to 1.03/1.14/1.25 yuan (the original forecast was 1.13/1.28/1.42 yuan), the corresponding PE was 15/14/12 times, and the target price was lowered to 20.5 yuan, corresponding to the 24-year PE 20X, maintaining the “recommended” rating.
Risk warning: industry competition intensifies, new product sales fall short of expectations, tightening regulatory policies, food safety risks, etc.