Event: The company publishes its report for the first quarter of 2024. 24Q1 achieved operating income of 2,646 billion yuan, -14.87% year over year; realized net profit of 727 million yuan, -29.43% year over year; realized net profit without deduction of 709 million yuan, -28.67% year over year.
By brand: 24Q1 main brands Tomson Beijian/Jianliduo/Life-Space (domestic) /LSG (overseas) achieved revenue of 15.45/3.73/1.20/253 yuan respectively, or -17.74%/-2.06%/-29.48%/-5.08%, respectively. The revenue of various brands declined by varying degrees due to the high base in the same period in 2023. Among them, Life-Space and the main brand Tomson Beijian were relatively obvious. We judge that it may be mainly due to the short-term surge in consumer demand for immunization products in 23Q1 after the pandemic.
By channel, 24Q1 offline/online channels achieved revenue of 1,722/909 million yuan respectively, or -7.55%/-26.53% year-on-year, respectively. The company's online channel revenue has declined significantly. The main reason is that the entry threshold for online channels is low, e-commerce platforms are diversified, and the concentration of competition in the industry is fierce. As an omnichannel all-category layout, compared to brands that focus on a single category, the development of online channels is under relative pressure in the short term.
Overall, gross margin was basically the same as 23Q1. Sales expenses remained high at the beginning of the new cycle, and profit levels were under pressure. The 24Q1 gross margin/net margin of the company was 69.90%/27.17%, respectively, -0.42/-6.61 pct. The cost rate for the 24Q1 period was 36.67%, +8.28pct, with sales/management/R&D/finance expenses ratios of 31.20%/4.75%/1.19%/-0.47%, respectively, +6.58/+1.45/+0.28/ -0.02pct, respectively. The company is in the beginning of the new three-year plan. The 24Q1 net interest rate declined significantly, mainly affected by the rise in the company's sales expenses rate and management expenses ratio. To achieve the core goal of increasing market share in the new cycle, we expect the company to maintain cost investment in the short term, help implement a strong brand strategy, and help transform into a strong technology enterprise.
2024 marks the beginning of the company's new three-year plan. It is also a year of comprehensive deepening of changes. We look forward to gradually moving from “transformation” to “implementation”. 1) In terms of product upgrades, the company will focus on key categories for 24 years. Among them, the company will iteratively upgrade the two main products, protein powder and Guanliduo. Among them, Jianliduo's upgraded products have already been launched, and delivery to some dealers has now begun, and market feedback after product upgrades need to be continuously tracked; 2) In terms of product innovation, in August '23, the company took the lead in submitting new function declarations and product registration applications that “help maintain normal platelet aggregation function” in the industry. Currently, it is being actively promoted, or is expected to be the first to be approved; 3) In terms of channel transformation, the company will be the first to be approved. Build Strengthen competitive barriers in offline channels by differentiating multiple pallets, boosting new retail sales, and strengthening in-depth offline distribution and channel sinking. At the same time, the company will strengthen the Group's overall e-commerce strategy and enable high-quality omnichannel growth through the establishment of the Group's digital marketing center and a digital platform for members; 4) In terms of brand governance, the company will enhance the brand's driving role in the business and enable omnichannel business growth by further strengthening the brand division's full-cycle management capabilities.
Investment advice: We believe that in 2024, the company will comprehensively deepen reforms in accordance with the strategic direction of “multiple brands, large single products, all categories, and omni-channel single focus”, and not change the trend of increasing market concentration brought about by the continuous investment of medium- to long-term strong brands under short-term pressure. We expect the company to achieve net profit of 1,825/20.54/2,315 billion yuan in 2024-26, an increase of 5%/13%/13% over the previous year, EPS of 1.07/1.21/1.36 yuan/share, and corresponding PE of 15X/13X/12X respectively, maintaining the “recommended” rating.
Risk warning: Risk that market demand falls short of expectations, risk that the company's new product promotion falls short of expectations, risk of increased market competition, food safety risks.