Core views

For the full year of 2023, the company achieved operating income of 1.934 billion yuan, +9.29%, after deducting non-net profit of 728 million yuan, or -5.06%. 24Q1 revenue +9.65%, net of non-net profit -5.34%. In 2023, the company's online channels increased marketing and promotion, and short-term expenses increased rapidly. The company's own gross margin was high, and there was plenty of profit space. If the company's own gross margin was high, revenue growth could still be obtained on the profit side after increased investment. In 2023, the company's cosmetics accounted for 56% of total revenue, and gross margin increased slightly by 0.05pct. The company relies on the consumer mentality of device-type dressings to develop skincare. A number of new products are expected to be launched in the second half of this year, focusing on marginal improvements in sales data.

occurrences

The company announced its 2023 annual report and 2024 quarterly report: for the full year of 2023, the company achieved operating income of 1,934 million yuan, a year-on-year increase of 9.29%, net profit of 749 million yuan, -11.56%; after deducting non-net profit of 728 million yuan, -5.06%, of which Q4 achieved operating income of 594 million yuan, +30.78%. Net profit attributable to mother was 213 million yuan, +7.28%; after deducting non-net profit of 203 million yuan, +3.8%. The company plans to pay a dividend of 10 yuan (tax included) for every 10 shares, with a dividend payment rate of 53.39%.

2024Q1 achieved revenue of 409 million yuan, +9.65%, net profit of 152 million yuan, -4.77%; deducted non-net profit of 142 million yuan, -5.34%.

Brief review

The gross margin remained high, and the growth rate of the cosmetics business remained steady. The company's gross profit margin for the full year of 2023 was 82.23%, -0.84 percentage points year on year. The gross margin for the 2023Q4/2024Q1 single quarter was 81.89%/81.41%, respectively, -2.03/-1.23pct. Although there was a decline, the share of medical devices with higher gross margin fell to 43.98% in 2023 (23H1 was 46.09%). Structurally, the share of cosmetics in 2023 was 46.09% The gross margin increased slightly by 0.05 pct to 80.26%, and the gross margin was stable. On the revenue side, cosmetics revenue in 2023 was 1,083 million yuan, +19.92%, and the medical device business was 850 million yuan, -1.79%. Due to increased market participants and increased competition, business revenue was affected to a certain extent. The company developed from the mechanical brand dressing business to skincare in recent years, effectively compensating for the decline in medical devices.

The increase in marketing and promotion expenses led to an excellent online growth rate. The offline adjustment period was under pressure. The company's sales expenses rate in 2023 was 27.53%, + 5.48pct, of which the promotion fee was 485 million yuan, +37.3%; 2023Q4/2024Q1 sales expenses were 29.80%/32.62%, respectively, compared to +7.71/9.26pct, the main cost increase. On the one hand, the cosmetics business pays more attention to channel marketing power than medical devices; on the other hand, the gradual increase in the company's online share will also increase costs. In 2023, the company's online direct sales revenue was 790 million yuan, +33.9%, accounting for a rapid increase of 40.9% from 33.4% in 2022. In addition, the online dropshipping and distribution segment increased 3.7% to 133 million yuan, accounting for 47.8% of the total online sales.

The offline business declined slightly by 3.9% to 1,010 billion yuan due to the impact of the overall environment and competition. The company began reorganizing strict controls on offline channels in the second half of last year. The short-term impact on revenue was certain, and it is expected to gradually pick up this year. The management expense ratio for the full year of 2023 was 4.67%, +1.98pct, mainly due to new recruits and increased depreciation and amortization due to the opening of the company's Beigu base; the financial expense ratio was -3.88%, -2.35pct year-on-year. The 2024Q1 management fee rate was 5.36%, -0.67pct; the financial expense ratio was -6.23%, -3.47pct. The net cash flow from the company's operating activities in 2023 was 826 million yuan, which is equivalent to profit. As of the end of the first quarter, the company had a monetary capital of 3.4 billion yuan. There was some upfront investment in the online business, and sales may lag behind. The company's cash flow provides a strong guarantee for subsequent business development.

R&D is improving steadily, and product consumer mentality continues to be built

In 2023, the company's R&D expenditure rate was 1.70%, +0.83 percentage points, a significant increase. On the one hand, the company is increasing the upgrading of the internal R&D system and vigorously introducing R&D talents; on the other hand, it collaborates and deepens industry-university-research cooperation with research institutes. During the reporting period, the company established the Shanghai branch of Harbin Shierjia Technology Co., Ltd. to further consolidate its independent scientific research capabilities. The company's medical sodium hyaluronate repair patches are the first batch of Class II medical dressing products with sodium hyaluronate approved for marketing in China. Under this mentality, the company developed cosmetic masks. Among them, the acne cleansing and whitening mask launched in 2022 had a significant growth rate and already ranked among the top five single products. At the same time, the company launched secondary products based on the market, which are more cost-effective than competing products, and sales are gradually increasing.

Profit forecast and investment advice: In 2023, the company's Northern Beauty Valley project was completed, opening up an independent production model and laying the foundation for sales growth. Subsequent increases in scale are also expected to effectively dilute production costs. We expect the company's net profit to be 8.47/954/1,091 million yuan in 2024-2026, corresponding to PE of 16/14/12 times, maintaining an increase in holdings rating.

Risk analysis

1. Policy supervision has a lagging impact on product sales and product approval time: since China's professional skin care industry is still in the early stages of rapid development, the industry supervision policy framework and details are still being improved, and the continuous introduction of new policies is likely to have an impact on the filing of new products and the approval of research products;

2. Risk of increased marketing expenses exceeding expectations: New competitors continue to emerge in the company's industry to seize market share, and the cost and difficulty of enterprise customer acquisition continues to increase. At the same time, the cosmetics industry is fully competitive and requires large investment; 3. Risk of product technology iteration: If new ingredients or new technologies appear in skin care products in the future, the company's products may be replaced or eliminated.