1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 2.65 billion yuan, -14.87% year on year; net profit to mother of 730 million yuan, -29.43% year on year; net profit without return to mother of 710 million yuan, -28.67% year on year. The results were in line with our expectations.
Development trends
Under a high base, the 1Q24 performance was under pressure, and LSG's revenue performance was better than domestic performance. Revenue in 1Q24 fell 14.9% year on year, mainly due to strong demand for health products, immunity and protein categories in 1Q24 after optimizing the epidemic prevention policy. By channel, domestic online/offline channel revenue in 1Q24 was -26.5%/-7.6%, respectively. The main reason for online performance was lower than that of categories with a higher online base and better online growth (such as fish oil, calcium, collagen, etc.), which were not Tomson's strong categories. By product, 1Q24's main brand, Jianliduo, and Life-Space's domestic product revenue was -17.7%/-2.1%/-29.5%, respectively. Protein powder and probiotics had a higher base for the same period last year; LSG revenue was -5.1%, which is better than domestic probiotics. We expect this is mainly due to better cross-border markets.
The gross sales gap was basically stable throughout the year, and expenses were invested to enhance brand strength. The gross margin of the 1Q24 company was -0.4ppt to 69.9% year-on-year, mainly due to 1Q23's higher base. The 1Q24 sales expense ratio was +6.6ppt to 31.2% year-on-year, mainly due to high investment in brand building and revenue pressure. Furthermore, the 1Q24 management rate and R&D rate were +1.4/0.3ppt, respectively. We expect this is mainly due to increased recruitment of new management and R&D personnel and revenue pressure. Overall, the 1Q24 net margin was -5.7ppt to 27.5% year-on-year under a high base, putting pressure on profit growth in the short term.
It is expected that business will continue to rise this year, and the medium to long term is expected to benefit from increased health awareness and aging trends among residents. Considering the high 1H23 base, we expect the 2024 revenue growth rate to show a high trend. The industry is expected to maintain steady growth throughout the year, and the company's market share as the industry's leading market share is expected to remain stable. Looking at the medium to long term, in the context of rising health awareness and aging, we expect the dietary supplements industry to maintain a good growth trend. The company is expected to achieve continuous growth based on an all-category and multi-brand strategy, and the market share is expected to increase in the medium to long term.
Profit forecasting and valuation
The profit forecast for 2024/25 remains unchanged. The company traded 14/12 times P/E in 2024/25, maintaining a target price of 20.5 yuan, corresponding to 19/16 times P/E and 33% upside in 2024/25. Maintain an outperforming industry rating.
risks
Online competition has intensified, industry regulations have changed, and demand falls short of expectations.