Core views
In 2023, the company's revenue was 6.076 billion yuan, -4.45% year-on-year, net profit of -38.97%, after deducting non-net profit of 490,000 yuan, -42%, which was mainly affected by active adjustments in the cosmetics business starting at 23H2. The basic arrangement of business personnel and structure was completed in the first quarter of this year, and the product side was updated one after another in April. It is recommended to pay attention to new changes in the promotion cycle. The 24Q1 company's revenue was 1,361 billion yuan, +4.24%, net profit attributable to mother was 243 million yuan, +21.39%, after deducting non-net profit of 231 million yuan, or +53.3%. The high profit increase was mainly due to profit elasticity brought about by the more than doubling of medical and aesthetic revenue and the decline in expenses. The company's medical and aesthetic growth is not about launching new products, but rather replanning old products to improve customer orders and provide one-stop overall solutions according to family sales, reflecting the business's ability to operate, and is expected to contribute significantly to this year's profit growth.
occurrences
The company announced the 2023 annual report and the 2024 quarterly report: the company's revenue in 2023 was 6.076 billion yuan, -4.45% year-on-year, and net profit to mother was 593 million yuan, -38.97%, after deducting non-net profit of 490 million yuan, or -42%.
24Q1 revenue of 1,361 million yuan, +4.24%, net profit attributable to mother was 243 million yuan, +21.39%, after deducting non-net profit of 231 million yuan, +53.3%.
The company plans to distribute 3.8 yuan for every 10 shares, with a cash dividend of 182 million yuan, combined with repurchases of 106 million yuan, accounting for a total of 48.56% of net profit returned to mother in '23.
Brief review
The skincare business began to be adjusted in the second half of '23. The decline in the first quarter narrowed. In 2023, the company's skincare business achieved revenue of 3.757 billion yuan, -18.45% year-on-year, accounting for 61.84% of the company's main revenue. The company's functional skincare business rapidly increased from less than 1 billion dollars in revenue in 2019 to a scale of nearly 5 billion dollars. In rapid development, organizational management focuses more on scale improvement. As online channels accelerate competition, refined operation capabilities are particularly important. Since the second half of last year, the company has taken the initiative to make phased adjustments to the business: optimizing the category system with large single products as the core; improving the efficiency of resource use; optimizing the proportion of high-rate channels, stabilizing and increasing the proportion of self-operated channels; and implementing specific digital projects to improve quality and efficiency in accordance with the overall goals of the company's management transformation. The decline in the company's functional skincare business is expected to narrow to 15-20% in the first quarter of 2024, which is significantly narrower than the 30% decline in 23H2. The personnel of the company's cosmetics business department was readjusted in the first quarter, and more emphasis was placed on high-quality growth under the new organizational structure. In April, new products such as Runbaiyuan Air Bomb, Mibelle Blue Bandage Essence, and Muscle-Active Brown Rice Water 2.0 were launched. The 618 promotion in the second quarter was the peak season for cosmetics sales. The new team and organization can be expected to perform during the promotion period.
The medical and aesthetic business is developing rapidly, and the multi-product portfolio focuses on one-stop solutions. In 2023, the company's medical terminal business achieved revenue of 1.09 billion yuan, +58.95%, accounting for 17.95% of the company's main business revenue. Among them, dermatological medical products achieved revenue of 747 million yuan, an increase of 60.29% over the previous year. Among them, micro-crosslinked moisturizer needle +200% +; moisturizer revenue +250% +. The company's medical and aesthetic revenue growth rate more than doubled in 24Q1. Considering the dilution of expenses on scale and the company's control of expenses, profit margins are expected to increase significantly. The company continues to improve the product system. By focusing on facial rejuvenation, the company focuses on creating layered anti-aging aesthetics, and has built a complete product system through various products such as micro-crosslinked moisturizer needles and moisturizer No. 2, No. 3, and No. 5. The company's medical and aesthetic growth is not about launching new products, but rather replanning old products and selling according to family combinations to improve customer orders and provide one-stop overall solutions, reflecting the ability to operate the business. In terms of pipelines, the company's three-class sodium hyaluronate compound solution is currently in the registration correction stage. The intended use is to correct moderate to severe neck lines. It is expected to obtain a registration certificate in the second half of 2024; the three types of organic water light products have entered the registration and declaration stage, and are expected to become the first batch of water-light indication products to be marketed in compliance.
The raw materials business developed excellently overseas. The share of the non-traditional HA business increased the raw materials business revenue by 1,129 billion yuan in 2023, +15.22%, accounting for 18.59% of the main business revenue. Among them, the company's sales revenue of export raw materials was 517 million yuan, +21.47%. The growth rate of pharmaceutical-grade raw materials was relatively rapid. It mainly benefited from the company's localized operations promoted in its internationalization strategy, and sales volume continued to grow in Europe, Asia, America and other places. Cosmetic-grade raw materials have achieved positive growth, and gross margin increased in 2024Q1; although food-grade gross margin has declined, the company has an advantage in scale and clearly seizes share. The company's share of non-traditional hyaluronic acid business has increased, reflecting multiple R&D, product and sales capabilities.
As the company's foundation and cash cow, the raw materials business is developing steadily, and its role as a platform for transforming R&D results in the first step is prominent.
Profit prediction and investment advice: After taking the initiative to reorganize the business many times in the company's history, it has been revitalized (there are traces of raw materials, medicine and aesthetics). This round of cosmetic adjustments will focus more on high-quality development, and the second quarter will focus on stress testing of major promotions. We expect net profit of 8.22/10.79/1,328 billion yuan for 24-26, corresponding PE is 36/27/22 times, maintaining a “buy” rating.
Risk analysis
1. New product marketing risks. After the company successfully develops a new product, whether it is a raw product, a medical terminal product, a functional skincare product or a functional food, it is necessary to carry out targeted marketing activities based on factors such as product characteristics, sales model, customer structure, etc., to obtain widespread market recognition and promote the increase in product sales.
2. Overseas business risks. The company has many subsidiaries in overseas regions. Companies need to have certain international management capabilities and comply with the laws and regulations of the country and region where they are located to establish institutions and continue to conduct business overseas. Therefore, there are management risks in the overseas business process, as well as a series of risks brought about by the legal and policy environment.
3. Safety risks in medical and aesthetic business. If improper medical and aesthetic business causes disputes or legal risks, it may affect the company's brand reputation and adversely affect the company's operations.