The 2023 results are in line with market expectations, and the 1Q24 results are higher than our expectations: 2023 revenue of 1,275 billion yuan, +42.3% year over year; net profit to mother - 50.87 million yuan, a year-on-year decrease in losses. Corresponding to 4Q23 revenue of 333 million yuan, +34.9% year-on-year; net profit to mother was 34.53 million yuan, a year-on-year decrease in losses. 1Q24 revenue was 293 million yuan, +28.6% year-on-year; net profit to mother was 15.61 million yuan, turning a year-on-year loss into a profit. The 2023 results are basically in line with previous performance reports and in line with market expectations; the 1Q24 results were higher than our expectations, mainly due to increased cost ROI, and the company began to make profits.
High investment in Douyin channel expenses led to high revenue growth: 1) In 2023, the company's online channel revenue was 887 million yuan, +47% over the same period, a record high, accounting for 69% of total revenue, mainly due to traffic growth driven by high investment in Douyin channel expenses. According to Feigua data, the company's share of massage equipment on the Douyin channel increased from 6% in 2022 to 16% in 2023. 2) Offline revenue in 2023 was 371 million yuan, +41% year over year, basically recovering to pre-pandemic levels (374 million yuan in 2019). 3) The promotion of new products has achieved remarkable results. In 2023, the contribution of new products to total revenue reached 58.9%. Among them, the Neck N5 Mini was the first to break through the Douyin channel and drive sales in the company's traditional e-commerce and offline stores. In 2023, shoulder massager revenue was +439% to 483 million yuan. The new scalp massage comb also showed impressive results, driving revenue from head+scalp products +49% year over year to 166 million yuan. 4) However, the Douyin channel's fee ROI was low, causing the company to lose money in 2023.
1Q24 ROI improvement in marketing expenses: 1) Gross margin increased 9.5ppt to 59% in 2023, with online/offline channels increasing 9.1/9.6ppt respectively, mainly due to increased share of high-margin new products and supply chain cost reduction. 1Q24 gross margin was +3.7ppt to 63% year over year. 2) In 2023, the sales/management/R&D expense rates were +0.1/-0.7/-1.8ppt, respectively, with high revenue growth and significant dilution of expenses during the period. Due to the company's increased layout of the Douyin channel, the sales expenses rate did not decrease. The cost rate decreased 1.9ppt year over year during the 1Q24 period.
3) In 2023, the company's net interest rate to mother was -4.0%, reducing losses; along with revenue growth and customer repayment growth, there was a net cash inflow of 81.69 million yuan from operating activities. 1Q24 net margin was +6.1ppt to 5.3% year over year.
Development trends
We expect profit improvement in 2024: the company's development of the Douyin channel in 2023 led to a high revenue increase, but in the early period, high channel cost investment dragged down profits. 1Q24 fee ROI increased. 2) The company has initially formed a strategy to channel Douyin channels to other e-commerce platforms and offline direct store transactions. Increasing the share of channels with high profit margins can effectively contribute to profits. By the end of 2023, the company had 143 offline direct-run stores and 44 distribution stores.
Profit forecasting and valuation
Due to the obvious trend of improving the company's profit, we raised 2024 net profit by 4% to RMB 80.52 million, and introduced net profit of RMB 108 million in 2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 34.2 times/25.4 times. Maintaining an industry rating and a target price of 39.20 yuan, corresponding to 41.8 times the price-earnings ratio of 2024 and 31.1 times the price-earnings ratio of 2025, there is 22.5% upside compared to the current stock price.
risks
Risk of market demand fluctuations; risk of new product performance falling short of expectations.