Huaxi Biotech's 24Q1 deduction was +53%, and the growth inflection point was obvious. 1) 2023: Achieved revenue of 6.076 billion yuan/yoy -4.45%, net profit attributable to mother of 593 million/yoy -38.97%, deducted net profit of 490 million/yoy -42.44%.

23. Full-year profitability declined, gross profit margin 73.32% /-3.67pct, net sales profit 9.59% /-5.53pct; cost side was basically stable, sales expense ratio 47% /-1.0pct, management expense ratio 8% /+2.0pct, R&D expense ratio 7% /+1.0pct; 2) 23Q4: achieved revenue of 1,854 million/yoy -9.04%, net profit of 78 million/yoy -73.37%, net profit not attributable to mother of 0.58 million/yoy -77.07%. 23Q4 net profit fell, gross profit margin 73.88% /-2.6pct, net sales profit margin 4.08% /-10.35pct; R&D investment continued to increase, R&D expense ratio 9% /-1.0pct, management expense ratio 9% /+3.0pct; 3) 24Q1: achieved revenue of 1,361 billion yoy +4.24%, net profit attributable to mother 243 million yoy +21.39%, net profit not attributable to mother of 231 million yoy +53.30% Growth inflection point. 24Q1 gross profit margin 75.73% /+1.95pct, net profit margin 17.89% /+2.49pct; period expenses decreased, sales expenses ratio 36% /-10pct, management expense ratio/R&D expenses ratio were 9%/7%, respectively, with year-on-year changes of +2.0/+1.0pct, respectively.

The gross profit of medical terminal products is stable, and cost reduction and efficiency are increased. 1) 2023: The company's overall gross margin for 23 was 73.32% /-3.67pct. The gross profit of functional skincare products declined, with a gross profit margin of 73.93%/-4.44%, and online direct sales revenue decreased year-on-year, mainly due to the company's phased adjustments to the skincare business; the gross profit margin of medical terminal products was outstanding, with a gross margin of 82.10% /+1.24pct, which is still the main source of profit; the gross profit ratio of raw materials products was 64.71% /-6.83pct, mainly due to increased production costs; 2) Cost reduction and efficiency: cost reduction, rate optimization, the cost rate of the medical and aesthetic sector was further reduced in '23; 24Q1 showed results, and the sales rate was less than 40%; efficiency increased, and there was a scale effect. In terms of raw materials, the production/sales/inventory of hyaluronic acid raw materials increased by 0.13%/25.12%/11.71%, respectively; in terms of medical terminal products, the production/sales/inventory of medical terminal injections increased by 27.56%/8.36%/64.81%, respectively, compared to the same period last year, and the medical and aesthetic business continued to gain strength.

Skincare products were clearly under pressure in '23, and the 24-year adjustment strategy ushered in an inflection point in revenue. The company's functional skincare business revenue declined in '23, to 3.757 billion/yoy -18.45%, accounting for 61.84% of the company's main business. 1) Company adjustments:

In 2023, major skincare brands were adjusted in stages, including brand upgrades and organizational management changes, which put further pressure on short-term performance; 2) Product strategy: continue to build a large single product line, with Runbaiyan's single product barrier repair series accounting for 40% of Chaorun Baiyan's overall sales revenue; expanding brand outreach to further focus on differentiation on the anti-aging circuit; actively promoting new products such as Rurun Baiyan Collagen Essence Bomb and Muscle Active Brown Rice Water 2.0.

Revenue from the medical and aesthetic business has increased rapidly and has entered a harvest period. In '23, the company's medical terminal business achieved revenue of 1,090 billion yoy +58.95%, accounting for 17.95% of the main business revenue. Dermatological medical products achieved revenue of 747 million yoy +60.29%. Among them, revenue from the company's core product micro-crosslinked moisturizer increased by more than 200% year on year, revenue from moisturizer fillers increased by more than 250% year on year, and revenue growth was high. At the same time, the company stocks various products such as hyaluronic acid complex solution and kinetics, and has rich pipelines.

Revenue from the raw materials business increased significantly, and the product structure continued to be optimized. In '23, the company's raw materials business achieved revenue of 1,129 million/yoy +15.22%, accounting for 18.59% of the main business revenue. 1) In terms of product structure, sales types and revenue of non-hyaluronic acid raw materials have achieved rapid growth; the gross margin of hyaluronic acid raw materials is high and the sales revenue of pharmaceutical-grade hyaluronic acid raw materials is 401 million/yoy +18.96%; 2) In terms of basic research and development, the company's sterile grade HA production line has completed trial production, adding sodium Hyatrue hyaluronate to consolidate HA's high-end market position; in terms of food-grade raw materials, instant HA was launched; other bioactive substances such as BioYouth-EGTPure ultra-pure ergothione and Bloomcollacol3-MD humanized collagen further form a bioactive substance platform enterprise.

Investment suggestions: The company's functional skincare business is gradually improving, the product side positioning is clear, the multi-brand matrix is gradually being consolidated, and the initial results of the medical and aesthetic business reform have begun to increase; the first results of the medical and aesthetic business reform have begun to enter the harvest period; the raw materials business has leading industry advantages, and the forward-looking layout continues to grow steadily; the food business also has great development potential, and we are optimistic that the company's profit is highly elastic. We expect revenue of 6.56 billion yuan/7.793 billion/ 8.804 billion, net profit to mother 2.3 billion The year-on-year increase was 46.0%/29.9%/17.7%. The corresponding PE was 34X/26X/22X, respectively, maintaining the “buy” rating.

Risk warning: Industry competition increases risks, new product R&D registration falls short of expectations, brand promotion expenses fall short of expectations, food business development falls short of expectations.