Description of the event
The company disclosed the 2023 annual report and the 2024 quarterly report: in 2023, the company achieved revenue of 1,033 million yuan, an increase of 21%; net profit to mother was 226 million yuan, an increase of 41% year on year; net profit after deducting non-return to mother was 219 million yuan, an increase of 42% year on year. Among them, 2023Q4 achieved revenue of 209 million yuan, a year-on-year increase of 20%; net profit to mother was 45 million yuan, an increase of 59% over the previous year. 2024Q1 achieved revenue of 167 million yuan, up 10% year on year; net profit to mother of 35 million yuan, up 68% year on year; net profit after deducting non-return to mother of 31 million yuan, up 45% year on year.
Incident comments
All year 2023: Actively expand omnichannel, maintain high growth in the baby care category, and continue to introduce new products. By category in 2023, revenue from baby care/mosquito repellent/essential oil/other products changed by 34%/19%/-0.1%/-14%, respectively, and the share of the infant care business with high gross margin increased further. Representative new products in 2023 include Centella asiatica smoothie cream, mosquito repellent spray - mosquito repellent 10% (white peach oolong), children's gentle cleansing bubbles, baby egg butter cleavers, etc. By channel, we are actively expanding omnichannel, driven by online direct sales/online distribution/online distribution/online distribution/non-platform distribution revenue of 620 million, 134 million, 0.3 million and 249 million, an increase of 20%/9%/4%/32% year-on-year, and the proportion of offline non-platform distribution has increased. Through non-platform dealer companies, offline channels such as Da Runfa, Walmart/Sam's Club, 7-11, and KA channels such as Mingchuang Premium, Watsons, and China Resources supermarkets, etc., and special communication channels such as WOW COLOR.
Looking at the full year of 2023, the company's gross margin increase in each category and the optimization of the category structure will drive continuous improvement on the gross profit side and increase in profitability. The overall gross margin increased by 2.15 percentage points for the full year of 2023, mainly due to: 1) the gross margin of all categories achieved a certain increase, and the gross margins of the core infant care and mosquito repellent categories increased by 2.66 and 1.96 percentage points respectively; 2) the share of infant businesses with high gross margins increased. The annual sales rate decreased by about 1.07 percentage points, the R&D and management expenses ratio increased slightly, and the finance rate decreased by 0.93 percentage points, mainly due to an increase in interest income.
Overall, the improvement in gross margin and the reduction in the sales expense ratio are the main reasons for the increase in the company's profitability.
2024Q1: Average prices for core categories increased, and gross margins continued to be optimized. On the revenue side, by category, the revenue scale of mosquito repellent, infant care, and essential oils was 39.3 million yuan, 110 million yuan, and 11.79 million yuan, respectively. On the profit side, the company's gross margin continued to be optimized, increasing 2.85 percentage points to 55.7% year on year. The main reason is the increase in the average sales price of core categories, which has a positive effect on the added value of products: moisturizer, sunscreen, and split bars with higher unit prices in infant care increased by 42% year on year; the average price of mosquito repellent categories increased slightly by 4% year on year. At the same time, the sales expense ratio in a single quarter increased by 1.22 percentage points year on year, management expenses rate decreased by 0.3 percentage points, and R&D expenses increased by 0.41 percentage points. The subsidy brought Other earnings also increased significantly in the current period. Taken together, the improvement in gross margin and the increase in financial surpluses were the main reasons why the overall growth rate of net profit deducted from mother in the first quarter exceeded the revenue side growth rate.
Investment advice: We believe that the company's future development space mainly comes from two aspects: from the perspective of category expansion, driven by industry category segmentation and product innovation logic, although the company's infant care category has begun to take shape, considering its market share, there is still a large room for product upgrades and promotion; from a channel perspective, based on the channel structure in 2023, we believe that whether it is an offline chain or online Douyin, it is expected to become the company's most important channel growth. EPS is expected to be 0.71, 0.89, and 1.08 yuan/share in 2024-2026, respectively, maintaining a “buy” rating.
Risk warning
1. There is a risk that business performance will depend on popular products; 2. Industry competition increases the risk; 3. The risk of damage to brand reputation.