Incidents:
The company released its 2023 annual report and 2024/1 quarterly report: 2023 revenue of 6.076 billion yuan (YoY -4.5%), net profit of 593 million yuan (YoY -39.0%), net profit of 490 million yuan (YoY -42.4%); 2024Q1 revenue of 1,361 million yuan (YoY +4.2%), net profit of 243 million yuan (YoY +21.4%), net profit not attributable to mother of 231 million yuan (YoY +53.3%).
The raw material+medical terminal business performed well in 2023. The phased adjustment of functional skincare products benefited from the increase in revenue of pharmaceutical-grade ingredients and cosmetic grade raw materials. The raw material business revenue in 2023 increased 15.22% year-on-year; the medical and aesthetic business focused on differentiated superior categories, the medical terminal business revenue increased 58.95% year on year in 2023; the four major functional skincare brands grew rapidly after 3-4 years. In 2023, the company took the initiative to make phased adjustments to its major brands, and the functional skincare business revenue was the same. Decreased by 18.45% from the ratio. 2023 comprehensive gross profit margin 73.3% (-3.67pct), sales rate 46.8% (YoY -1.17pct), management rate 8.10% (YoY +1.92pct), net profit margin 9.75% (YoY -5.52pct).
Active adjustments in multiple dimensions, such as management/digitalization/business, expect the skincare business to gain momentum in 2024 and start again from the management dimension: the company will firmly push forward management changes and continue to implement the five strategic tasks of “digital transformation, organizational capacity improvement, compliance management, safe operation, and cost reduction and efficiency”. Achieve a shift from organization-driven to process-driven through the advancement of management change. Digital transformation dimension: The company relies on data index boards to build data operation and support teams at various levels, and establishes mechanisms for data collection, logical alignment of business indicators, and data operation meetings. Functional skincare business dimension: The company focuses on optimizing the category system with large single products as the core, deepening brand value; improving the overall management of multi-brand resources, improving the efficiency of resource use, and empowering the differentiated management and orderly growth of major brands. 2024Q1's revenue growth is steady, but the net profit growth rate is over 20%. We expect the skincare brand to start again in 2024 after phased adjustments.
Profit Forecasts, Valuations, and Ratings
The company's revenue for 2024-2026 is expected to be 70.95/80.95/9.253 billion yuan, respectively, with corresponding growth rates of 16.8%/14.1%/14.3%; net profit to mother is 8.63/10.51/1.272 billion yuan, respectively, with corresponding growth rates of 45.6%/21.8%/21.1%, respectively; and EPS of 1.79/2.18/2.64 yuan/share, respectively. As the results of the company's adjustments in management/organization/brand are gradually showing, the company's performance is expected to return to a growth trajectory, so it is recommended to pay attention.
Risk warning: market competition intensifies; new product promotion falls short of expectations; digital transformation falls short of expectations; sales rate rises above expectations