Incidents:

Langzi Co., Ltd. released its 2024 quarterly report. In 24Q1, it achieved revenue of 1.4 billion yuan/ +11.42%, net profit to mother of 82 million yuan/ +15.83%, net profit after deducting non-return to mother net profit of 79 million yuan/ +25.02%, and non-recurring profit and loss of 3.47 million yuan, mainly from net profit and loss from merger of subsidiaries.

Comment:

The nationalized layout of medicine and aesthetics is progressing rapidly, and the clothing sector continues to strengthen its position in the industry. 1) Medical beauty: Jimei, Zhengzhou successfully acquired, and the business layout expanded rapidly. In March 2024, the company acquired 70% of the shares in Jimei, Zhengzhou. The remaining shares are being promoted. The number of the company's medical and aesthetic institutions has increased to 39. Jimei, Zhengzhou, will collaborate with the remaining five major medical and aesthetic brands under the company to continue to strengthen the company's scale effect and industry position in the medical and aesthetic field. 2) Women's fashion: Focus on design and marketing capabilities to promote omni-channel integration and development. The company mainly develops the women's clothing business around R&D design and terminal marketing, gradually forming a significant brand advantage, compounding continuous strengthening of operating capabilities and integrated online and offline sales channels. The sector's revenue has maintained steady growth, and the gross margin has remained around 60% for a long time. 3) Green Baby: Strong brand strength to accelerate market share growth. While further increasing Korea's market share, promoting the domestic market layout, and continuously increasing business scale and market influence through vigorous channel expansion, the gross margin is rising steadily while sector revenue continues to grow.

The gross margin was further optimized, and the net margin increased steadily. Expense rate: 24Q1 company expense ratio 51.46% /+1.44pct, of which: 1) sales expense ratio 40.05% /+1.80pct, 2) management expense ratio 8.13% /-0.01pct, 3) R&D expense ratio 1.97% /+0.13pct, 4) financial expense ratio 1.32% /-0.49pct. Profitability: 24Q1 gross profit margin 59.54% /+3.06pct, net profit margin 5.87% /+0.22pct, net non-return interest rate 5.62% /+0.61pct. The increase in profitability is mainly due to improved gross margin. The growth rate of net profit attributable to mother is lower than net profit after deducting non-return to mother. The main reason is that the 24Q1 non-recurring profit and loss increased by 8.89 million yuan after the 24Q1 acquisition of Jimei, Zhengzhou. The adjusted 23Q1 and 24Q1 non-recurring profit and loss were 7.99 million yuan/3.47 million yuan, respectively.

Investment suggestions: The company's fashion women's clothing and green baby sector is developing steadily. The medical and aesthetic sector continues to promote a national layout through endogenous extension. Combined with a mature operating model that can be replicated, the business scale and profitability are expected to gradually rise. The company's revenue for 2024-2026 is estimated to be 5.949 million/6.719 billion/ 7.593 billion, and net profit to mother will be 319 million/391 million/462 million, respectively. The corresponding PE is 24 times/20 times/17 times, respectively. Maintain a “buy” rating.

Risk warning: Market competition intensifies; store expansion falls short of expectations; industry regulations are becoming stricter; performance forecasts and valuation judgments fall short of expectations.