As a leading domestic skincare leader, Bethany's profit in 2023 is under pressure due to multiple factors. The company achieved revenue of 5,522 million/yoy +10.14% in 2023; net profit to mother of 757 million/yoy -28.02%. Among them, 2023Q4 achieved revenue of 2,091 million/ -1.31%; net profit to mother of 178 million/yoy -66.74%. The company's profit decline in 2023 was mainly due to: 1) the company's “Double 11" sales performance was weak; 2) gross margin declined slightly due to product production and packaging upgrades; 3) long-term asset depreciation and amortization costs increased due to the completion and investment of central factory projects; and 4) increased online customer acquisition costs. Furthermore, the company plans to distribute a cash dividend of 0.6 yuan (tax included) per share to all shareholders, accounting for a total of 33.35% of net profit attributable to mother in 2023.

The 2024Q1 company's performance trend is positive. 2024Q1 achieved revenue of 1,097 million/yoy +27.06%; net profit attributable to mother of 177 million/yoy +11.74%; non-recurrent profit of 154 million/yoy +21.94%, of which non-recurring profit and loss were mainly net profit and loss of 12.44 million from changes in the fair value of entrusted financial management and 10.72 million investment income due to delegated financial management, compared to 31.45 million and 5.69 million respectively in the same period last year. The company acquired 51% of Yuejiang Investment's shares in 23Q4. Its two major brands, Za and Pomei, contributed to the company's revenue growth. 2024Q1 Yuejiang Investment contributed about 137 million dollars in revenue. Excluding this influence, 24Q1 revenue increased 11.13% year-on-year.

Gross margin declined in the first quarter, and the cost-side control effect was remarkable. The company's gross margin in 2023 was 73.90% /yoy-1.31pct, mainly due to the impact of the company's product upgrades. Sales/management/R&D expense ratios were +6.41pct/+0.64pct/+0.33pct, respectively. In order to further enhance brand awareness, the company increased marketing and promotion, which led to a significant increase in sales expense rates. The gross margin of the 2024Q1 company was 72.09% /yoy-4.02pct. Due to the low overall gross margin of Yuejiang Investment and the company's Q1 increase in promotion efforts to drive the overall gross margin downward, excluding the impact of Yuejiang investment, comparable caliber companies achieved a gross profit margin of 74.20% /yoy-1.91pct in the first quarter; the sales/management/R&D expense ratio of the 2024Q1 company was -0.87pct/-0.82pct/-0.96pct, respectively. The company increased cost control and significant cost reduction and efficiency. The overall cost ratio was remarkable. Descending. At the same time, the company's overall operating capacity and cash flow performance matched revenue.

Risk warning: The macroeconomy falls short of expectations, sales growth falls short of expectations, and industry competition intensifies.

Investment advice: Major management adjustments were made within the company in 2023, and continuous refinement of its brand products and channels led to some pressure on overall performance. However, looking at this year, the overall performance trend picked up in the first quarter. In the future, as the company continues to deepen the effective skincare circuit and continue to improve its multi-brand matrix, it will drive steady revenue growth. At the same time, continued promotion of cost reduction and efficiency measures will drive a further increase in profit levels, and Yuejiang's investment starting in 2023Q4 will also lead to a certain increase in performance. Considering that the company increased promotions and increased investment in response to the high cost of online customer acquisition, we lowered the company's net profit from 2024-2025 to 10.16/11.83 billion (original value was 16.30/20.72) billion yuan, and added a 2026 forecast of 1,325 billion yuan. The corresponding PE was 24/21/18x, respectively, maintaining a “buy” rating.