1Q24 results were better than our expectations
The company announced its 2023 results: revenue of 2,226 billion yuan, +28.5% year over year; net profit to mother of 259 million yuan, +48.9% year over year; deducted non-net profit of 188 million yuan, +38.2% year over year. On a quarterly basis, Q1-Q4 revenue was +24.6%/+34.1%/+46.1%/+17.2% year over year, and net profit to mother was +20.2%/+0.8%/+1366.8%/+58.0% year over year, respectively. The performance was lower than the previously forecast range and market expectations.
At the same time, 1Q24 results were announced: revenue of 661 million yuan, +38.7% year-on-year, net profit of 111 million yuan, +40.6% year-on-year, net profit excluding non-return to mother of 104 million yuan, +40.8% year-on-year. The performance was better than our expectations, mainly benefiting from the continued effectiveness of the star single product strategy, which led to an upward trend in performance.
Development trends
1. The potential of star products continues to be released, and online channels are growing rapidly. ① By brand, the main brand Marumi's revenue in 23 years was 1.56 billion yuan, with main revenue accounting for 70.1%, +11.6%, firmly dividing products and implementing a large single product strategy to consolidate the brand mentality of eye care experts and anti-aging master brands. Xiaohongbi Eye Cream and Double Collagen Xiaojin Needle Retouching Essence each had annual GMV of over 200 million yuan; 1Q24 According to our monitoring data, Marumi Tmall + Douyin + JD sales increased 40% year over year; small brand PL Love Fire built a second growth curve with main revenue of 6.4 billion yuan in 23, with main business revenue of 6.4 billion yuan Revenue share increased by 12ppt to 28.9%, +125%. The GMV of the five individual products, invisible foundation/powder/air cushion, and can't be rubbed off, exceeded 100 million yuan each; Q1 beauty revenue was +45% year-on-year. ② By channel, online revenue in '23 was 1.87 billion yuan, accounting for an increase of 12ppt to 84.1%, +50.4% year-on-year. Among them, Maoqi and Douyin revenue were +35.6%/+106.3% year-on-year respectively; offline revenue was 350 million yuan, accounting for 15.9%, or -21.2% year-on-year.
2. Product structure optimization led to a significant increase in gross margin, and Q1 profitability improved year-on-year. The company's gross margin was +2.3/+5.0ppt to 70.7%/74.6% year-on-year in '23/1Q24, mainly due to increased concentration of star products driven by product structure optimization and continuous cost control. On the cost side, the sales rate for '23/1Q24 was +5.0/+7.8ppt to 53.9%/50.3% year on year, mainly due to the company's vigorous promotion of online transformation and increasing online traffic costs. The management rate was -1.5/-1.2ppt to 4.9%/3.1% year over year, and the R&D rate was -0.3/-0.3ppt to 2.8%/2.5% year over year. Under the combined influence, net interest rate due to mother in '23/1Q24 was +1.6/+0.2ppt to 11.7%/16.7% year on year, after deducting non-net interest rate +0.6/+0.2ppt to 8.4%/15.8% yoy.
3. Continue to deepen star product strategies, strengthen brand content marketing, and be optimistic about medium- to long-term growth space. Looking forward to the follow-up: ① Marumi: The company plans to focus on the two star products, Xiaohongbi Eye Cream and Double Collagen Little Gold Needle Throw Essence, while actively cultivating Double Collagen Eye Cream and Butterfly Eye Mask as reserve items to continue to consolidate the brand mentality of “eye cream”, “anti-aging”, and “technology”; ② Love Fire: The company plans to continue to focus on the two major makeup series that cannot be seen or removed, while strengthening brand building through IP co-branding and fashion events. We are optimistic about the company's medium- to long-term growth space.
Profit forecasting and valuation
Maintaining the 2024-25 profit forecast, the current stock price corresponds to 2024/25 30/24x P/E. Maintaining an outperforming industry rating and target price of 37 yuan, corresponding to 39/31x P/E in 24/25, with 31% upside.
risks
Industry competition intensified; channel reforms fell short of expectations; incubation of new brands fell short of expectations.