2023 and 1Q24 results are in line with our expectations
The company announced its 2023 and 1Q24 results: revenue of $1,934 million, net profit to mother of $749 million, net profit of -11.6% year on year, net profit of 728 million yuan, -5.1% year on year; 1Q24 revenue of 409 million yuan, +9.7% year on year, net profit to mother of 152 million yuan, -4.8% year on year, net profit of 142 million yuan, and -5.3% year on year. The results are in line with our expectations. Looking ahead, the company will continue to increase investment in R&D, strengthen marketing capacity building, and focus on new products and online development.
Development trends
1. Cosmetics are growing well, and the proportion of online direct sales channels continues to increase. In 2023/1Q24, the company's revenue was +9.3%/+9.7%, respectively. By product in 23 years: ① Medical devices: revenue of 850 million yuan, -2.5% year over year, continued to increase brand awareness and maintain leading sales volume position. According to the company announcement, Shierjia won the top medical device brand in 2023 in the Tmall Health category; ② Cosmetics: revenue: 1.08 billion yuan, +21.4% year over year, mainly due to the company's continuous expansion of efficacy and category matrices, revenue share increased 5.5ppt to 57% year over year; Looking by channel in '23: ① Online direct sales: revenue of 790 million yuan, +33.9% year on year, revenue share was impressive. A further increase of 7.5ppt to 41%; ② Online distribution+consignment: revenue of 130 million yuan, +3.7% year-on-year; ③ Offline distribution: revenue of 1.01 billion yuan, -3.9% year-on-year.
2. Changes in product structure led to slight pressure on gross margin. Changes in channel structure combined with increased investment intensity, and profitability declined year-on-year. The gross margin of the company in '23/1Q24 was -0.8/-1.2ppt to 82.2%/81.4%, respectively, mainly due to the increase in the share of cosmetics revenue due to relatively low gross profit. On the cost side, the 23-year/1q24 sales rate was +5.5/+9.3ppt to 27.5%/32.6% year over year, mainly due to the increase in the share of online direct sales revenue and the increase in combined promotion expenses; management rates were +2.0/ -0.7ppt, respectively, the R&D rate remained flat at +0.8 pp/ year over year, and financial rates were -2.4/-3.5ppt year-on-year, mainly due to the increase in monetary capital. Under the combined influence, the final net interest rate of the company in '23/1Q24 was -9.1/-5.6ppt to 38.8%/37.1% year on year, respectively. Excluding the effects of government subsidies, large deposit certificates, and investment income from fixed deposits, the non-net interest rate was -5.7/-5.5ppt to 37.6%/34.6% year on year, respectively.
3. R&D investment, category expansion, and channel expansion continue to advance, and focus on new products and online progress. Looking ahead to the future, we believe: ① Product side: The company is expected to be put into use at the Shanghai R&D center in June 24, which is expected to absorb advanced talents and strengthen R&D capabilities; in terms of medical devices, expand new raw materials such as recombinant collagen, and lay out Class II and Class III medical dressings and injection products; in terms of cosmetics, consolidate the product matrix with mask as the main focus and other categories to create a series of products around treatment/acne removal/whitening/anti-wrinkle/sunscreen; ② Channel side: increase online marketing launch and multi-platform layout, and establish Shanghai e-commerce subsidiaries and multi-platform layout since 23 Optimizing the organizational structure, It is expected to continue to grow rapidly; at the same time, the company plans to focus on offline channels such as OTC, hospitals, airports, and duty-free shops in 24 years. Follow the company's subsequent new products and online progress.
Profit forecasting and valuation
Maintaining the 2024-25 profit forecast, the current stock price corresponds to 24/25 16/14x P/E. Maintaining an outperforming industry rating and target price of 47 yuan, corresponding to 24/25 22/20x P/E, with 41% upside.
risks
Competition in the industry continues to intensify; marketing costs are growing rapidly; brand expansion falls short of expectations.