Event: The company released its 2023 & 2024 Q1 results report. 1) In 2023, we achieved revenue of 5.52 billion yuan, +10.1% year-on-year; realized net profit of 760 million yuan, -28.0% year-on-year, and realized deduction of non-net profit of 620 million yuan, or -35.2% year-on-year. 2) In Q1 2024, we achieved revenue of 1.10 billion yuan, +27.1% year over year (sales revenue from the two major brands Za and Pomei acquired in 2023 was increased by about 11.13% according to the same period last year); net profit to mother was 180 million yuan, +11.7% year over year, and realized net profit of 150 million yuan, or +21.9% year over year.
Performance analysis: Revenue performance is relatively resilient, and increased costs and expenses are putting pressure on the profit side. The company's Double 11 sales fell short of expectations. Online sales performance was affected by the increase in average customer acquisition costs for online self-operated stores. At the same time, gross margin declined due to an increase in product upgrade costs. Depreciation and amortization costs and expenses for long-term assets after factory construction and operation increased, and profitability was under pressure in the short term. 2023 gross profit margin 73.9%, year-on-year -1.3 pct, net profit margin 13.8%, year-on-year -7.2 pct; 2024Q1 gross profit margin 72.1%, year-on-year -4.0pct, net profit margin 15.7%, year-on-year -2.2 pct.
Sales/management/R&D expenses in 2023 were 47.3%/7.5%/5.4%, respectively, +6.4/+0.6/+0.3 pct.
Brand strategy: Winona's brand upgrades and expands the circle, and multiple brands reinforce differences. By product, skincare/medical device/makeup, revenue was 48.7/4.6/170 million yuan respectively, +6.9%/+19.5%/217.3% year-on-year. The main brand Winona continues to expand and improve the efficacy matrix, from big single products to creating the sensitive skin PLUS series multi-star product matrix. At the same time, the multi-brand matrix gradually formed and strengthened differences. In 2023, the company successfully acquired Yuejiang Investment and obtained two brands, Za and Pomei, to complete the popular skincare and makeup market. At the same time, the company set up a Southeast Asia business headquarters in Bangkok, Thailand to explore overseas markets and jointly help open up a second growth curve.
Channel building: Outstanding offline revenue contribution, expanding diversified sales channels. By channel, online/OMO/offline revenue was 35.5/5.2/1.43 billion yuan, -0.4%/+10.3%/+48.9% year-on-year. Among them, online ownership/online consignment sales achieved revenue of 2.71 billion yuan, or +0.7%/-3.5% year-on-year. The company increased OMO sales channels, built its own Winona counter service platform online, and opened direct stores offline through its own and leased stores. The company strengthens global operations online. Ali/Douyin/JD/ Vipshop has revenue of 17.6/6.3/3.7/310 million yuan, yoy -14.5%/+47.1%/+5.0%/+1.6%. It is actively exploring the sinking market offline and will reach more consumers through CS channels.
Investment advice: The company's main brand, Winona, began the 2.0 era, continued to expand the circle and open the sensitive skin+efficacy growth curve. Multiple brands strengthened differences to help open the second growth curve. At the same time, the company's employee stock ownership plan showed confidence in future development. We expect the company's revenue for 2024-2026 to be 71.56/88.45/ 10.985 billion yuan, and net profit to mother will be 11.55/14.27/18.16 billion yuan, corresponding PE 21/17/13 times, respectively, to maintain the “increase” rating.
Risk warning: Risk of declining industry sentiment; increased risk of market competition; new product promotion falling short of expectations; risk of changes in cosmetics policies.