Event: On April 24, 2024, it was easy to publish the 2023 Annual Report and 2024 Quarterly Report. 2023 revenue/net profit attributable to mother/net profit without return to mother were $12.75/ -0.51/ -0.56 billion yuan, respectively, +42.30/ +58.97/ +57.26% year-on-year respectively. Of these, 2023Q4 was 333/-0.35/ -0.34 billion yuan, respectively, and +34.93/+48.02/ +50.27% year-on-year, respectively. 2024Q1 was 2,93/0.16/0.16 billion yuan respectively, +28.59/+956.06/ +682.76% year-on-year respectively. 2024Q1 revenue maintained rapid growth, reaching a record high in a single quarter since 2022.
In 2023, shoulder product revenue increased by more than 400%, and online and offline go hand in hand.
By product, revenue for eyes/neck/scalp+head/shoulder/lower back/other products in 2023 was 1.92/1.75/1.66/4.83/1.09/1.49 yuan, respectively, -0.04/-26.88/+49.30/+438.85/+30.95/ -17.00% year-on-year, and shoulder product revenue growth of over 400% was mainly driven by the popular Neck N5 Mini shoulder and neck massager. Demand for neck products declined due to this. Scalp+head and lower back products depended on the competitiveness of new products. Achieved rapid growth, and eye products performed steadily.
By channel, online channel revenue in 2023 was +47%, of which direct sales/distribution/e-commerce platform sales were +67.5/+19.0/ +16.2%, respectively, and offline channel revenue was +41%, of which direct sales and distribution were +32% and +68.7% respectively. Online and offline direct sales both achieved rapid growth, mainly due to sales growth of large single products such as Douyin channel N5 Mini. Meanwhile, traffic was introduced to other e-commerce platforms and offline direct stores. At the same time, in 2023, offline direct stores continued to adjust their structure. Revenue is growing month by month .
The high increase in offline distribution was mainly driven by duty-free channels, franchise business, and the addition of Sam's channels. The number of offline distribution stores increased by 14 to 44 in 2023.
2024Q1's profitability improved significantly, and the net profit margin reached a new high since 2022.
1) Gross profit ratio: 2023A/2023Q4/2024Q1 was 59.32/53.38/ 62.78%, respectively, +9.5/+12.1/+3.7pct, respectively. Among them, eyes/neck/scalp+head/shoulder/lower back/other products were +3.84/+12.30/+1.78/+22.15/+6.66/+1.88pct. The gross margin of all types of products increased by more than 20 pcts.
2) Expense side: Sales/management/R&D/finance expenses in 2023 were 53.94/4.25/4.59/ 0.29%, respectively, +0.10/-0.68/-1.81/+0.28pct, respectively. Among them, 2023Q4 was 51.56/4.78/5.39/ 1.57%, respectively, and -9.95/+1.48/+0.00/+2.37pct, respectively. The 2024Q1 sales/management/R&D/finance cost rates were 48.14/4.88/5.11/ 0.05%, respectively, and -2.31/+1.53/-0.23/ -0.92pct, respectively. The company focused on improving marketing efficiency, continued optimization of sales expenses, and offline direct-run stores were optimized month by month through fee control rates.
3) Net profit margin: 2023A/2023Q4/2024Q1 was -4.00/ -10.51/ 5.46%, respectively, and +9.84/+16.61/+6.34pct, respectively. 2024Q1's profitability improved significantly, which is expected to benefit from the overall loss reduction of offline direct-run stores and the increase in the profitability of Douyin.
Investment advice: The company is a leader in the field of smart portable massagers in China. The product side continues to be promoted, and the channel side initially forms a “big single product” sales strategy that diverts the Douyin channel to other e-commerce platforms and offline direct stores. The overall loss of offline direct stores continues to reduce losses, and the B-side business and video accounts are expected to maintain rapid revenue growth, and cost reduction will lead to improved profitability, and is expected to continue. We estimate that in 2024-2026, the company's net profit to mother will be 0.93/1.45/190 million yuan respectively, the corresponding EPS will be 1.09/1.69/2.22 yuan, respectively, and the PE corresponding to the current stock price will be 29.66/19.07/14.56 times, respectively. Maintain a “Recommended” rating.
Risk warning: Increased industry competition, risk of overseas operation, risk of unsustainable gross margin, risk of high sales expenses, risk of falling short of expectations in new product development, etc.