Core views
The company's offline channel revenue continues to recover, online channels maintain high growth, brand expenses increase in the short term, and profits are under pressure in the short term. Medium- to long-term companies are expected to improve investment efficiency and improve profitability. The company reformed its internal sales management structure to improve the efficiency of strategy formulation and resource allocation. Categories such as Life-Space maintained a high year-on-year growth rate. In February '24, the company raised its equity incentive targets for a new phase, optimistic about the company's multi-category development potential, and continued to lay out the blue ocean circuit through the big single product model. At the same time, the company announced a significant increase in the dividend rate to give back to all shareholders.
occurrences
The company released its report for the first quarter of 2024
The company achieved revenue of 2,646 billion yuan in 2024Q1, -14.87%; net profit to mother of 727 million yuan, year-on-year -29.43 million yuan; net profit after deduction of 709 million yuan, -28.67% year-on-year.
Brief review
Due to short-term year-on-year pressure due to base figures, equity incentives promoted the company's long-term development. Due to 2023Q1, which was affected by the high base due to the special factors of the epidemic, the year-on-year decline in 24Q1. (1) By brand: the main brand “Tomson Beijian” achieved revenue of 1,545 million yuan, down 17.74% year on year; joint care brand “Jianli Duo” achieved revenue of 373 million yuan, down 2.06% year on year; “lifespace” domestic products achieved revenue of 120 million yuan, down 29.48% year on year; overseas LSG achieved revenue of 253 million yuan, down 5.08% year on year (in Australian dollar terms: LSG's revenue was 54 million Australian dollars, down 4.74% year on year).
(2) By channel, offline channels achieved revenue of 1,722 billion yuan, a year-on-year decrease of 7.55%; online channels achieved revenue of 909 million yuan, a year-on-year decrease of 26.53%.
On February 2, 2024, the company reviewed and passed the “Proposal on Granting Restricted Shares for the First Time to Incentive Recipients of the 2024 Restricted Stock Incentive Program”. It was determined that the first grant date of this incentive plan was February 2, and 14.9 million restricted shares were awarded to 36 eligible incentive recipients at a grant price of 8.60 yuan/share. In addition, the company also has a stock option incentive plan. We believe that by establishing various types of incentives, the company enhances employee enthusiasm and is conducive to the long-term development of the company.
Net interest rate declined mainly due to sales expenses
The company's Q1 gross profit margin was 69.9%, -0.42pcts year on year, sales/management expenses ratio 31.2%/4.75%, and +6.58/+1.45pcts year over year. We speculate that the increase in sales expenses ratio is related to the decline in Q1 revenue and the weakening of the scale effect. Due to the drag on sales expenses, Q1 net profit margin was 27.46%, -5.67 pcts year on year, after deducting the non-net interest rate of 26.81%, or -5.19 pcts year on year. The company insists on implementing the “multi-brand, all-category, omni-channel single focus” strategy. With the gradual improvement of the company's operating capacity, there is still room for optimization of sales expenses, and the sales cost rate is expected to transition to 35%-40% within the next 3-5 years.
Profit forecasting and investment suggestions: The company reformed the internal sales management structure, divided offline pharmacy channels into regions, established a large single product division at the group level, etc., to improve the efficiency of strategy formulation and resource allocation. Large single product strength gradually recovered, and various categories such as Life-Space maintained a year-on-year high growth rate. The company continued to lay out a blue ocean circuit with high potential for future growth through the large single product model, improving equity incentive targets, which is beneficial to the development of multiple categories. We expect the company's revenue for 2024/2025/2026 to be 104.21/116.75/12.831 billion yuan respectively, up 10.8%/12.0%/9.9% year on year, and net profit to mother will be 19.04/21.77/ 2,427 billion, respectively, up 9.0%/14.3%/11.5% year on year, maintaining the “buy” rating.
Risk warning:
1. Food safety issues; the company's products focus on health and health benefits, and the processing and production process requires strict control. If there are many adverse reactions or food safety accidents, it will have a negative impact on the company's image products. 2. Increased competition: As capital enters the market, emerging influencer brands can use new channels to rapidly rise and generate higher sales in some segments. Fierce competition within the industry may cause brands to cut back sharply in order to seize market share, causing the industry's profit level to decline. 3. Online traffic is declining, and online turnover may not continue to grow. 4. The economy is weak, residents' spending power has declined, and residents' desire to buy optional foods has declined. 5. The share transfer dispute between the company and Yitong Century Technology Co., Ltd. over Beitai Health is still in the second trial. If the company loses the lawsuit in the second instance, it will have an impact on profits.