Description of the event
The company released its 2024 quarterly report. The company achieved operating income of 890 million yuan, a year-on-year decrease of 30%, and realized net profit of 59.04 million yuan to mother, a year-on-year decrease of 54%.
Incident comments
Looking at revenue by business, the company's cosmetics business focuses on the two main brands, Yilian and Dr. Eir, and has achieved good revenue and profit growth by optimizing resource allocation and increasing the input-output ratio. 2024Q1, the company's cosmetics business revenue increased 15% year on year. By brand, Yilian/Dr. Aier/ other brands grew 17%/21%/-17%, while other brands are expected to slow down in the revenue phase due to resource allocation adjustments, and gross margin is expected to drop 0.7 percentage points year on year due to adjustments in product and channel structure; in the pharmaceutical business, pharmaceutical business revenue fell 23% year on year, and gross margin fell 1.5 percentage points year on year. It is expected that the net income from investment led by Baekron reached 14.66 million yuan; raw materials Business revenue increased 10% year over year, and gross margin decreased 0.7 percentage points year over year.
Looking at profit as a whole, due to the divestment of the company's real estate business and the expected better control of expenses in the cosmetics business, the company's deducted non-net profit maintained good growth. Although the company's gross profit decreased by 48.35 million yuan year on year due to good cost control, sales expenses only increased by 3.12 million yuan year on year, management expenses decreased by 22.65 million yuan year on year, and financial expenses decreased by 59.93 million yuan year on year. Combined, operating profit (gross profit - tax - sales - management - R&D - financial expenses) was 57.38 million yuan, an increase of 17.41 million yuan year on year. Furthermore, due to the investment income confirmed by the company's six real estate target companies in the same period last year reached 117 million yuan, resulting in a high net profit base for the same period last year, 2024Q1's net profit to mother fell 54% year on year, and net profit after excluding non-recurring effects reached 52.2 million yuan, an increase of 242% year on year.
On the business side, Dr. Eyre's Fast Charging and Shaking Series sales share continues to rise, and Freda actively adjusts sales strategies and product structure improvements in the raw materials business. In the cosmetics business, the Dr. Earl brand's flash charger series has been fully upgraded, and the Dabo channel is deeply tied to core experts, continuously increasing the sales share of high-margin products such as Shake Up Essence and Flash Charge products. While the Yilian brand focuses on the “China High Moisture” positioning, increasing the live streaming channel layout without interruption during the Spring Festival, arranging 38 events ahead of schedule, and Daba+ self-broadcast dual-wheel drive sales growth. In terms of pharmaceuticals, the company's R&D side promoted 12 research projects. The product side carried out product package sales to strengthen drug investment, which effectively promoted sales growth of products such as neck pain tablets, musk bone cream, and Tongxuanli lung capsules; in terms of raw materials, Freda actively adjusted the sales strategy, adjusted the sales structure, increased the sales share of cosmetic grade hyaluronic acid with high gross margin, actively developed overseas markets in the API business, and increased sales of oral products through platforms such as Douyin and Kuaishou.
Investment suggestions: In the first quarter, the company's cosmetics business optimized resource allocation, focused on major brands and controlled the marketing expenses of small and medium-sized brands to ensure the revenue growth rate of the two major brands and an increase in the overall profit of the cosmetics sector. Taken together, considering the company's cost-effective price positioning, potential incentive mechanism improvement space, and judging from the cosmetics business promotion, the main brands Dr. Earl's flash product line and Shake Up Essence are being cultivated in an orderly manner. It is recommended to focus on allocation value. We expect the company's net profit to be 3.61, 472, and 558 million yuan respectively in 2024-2026, maintaining a “buy” rating.
Risk warning
1. The new product development and launch process fell short of expectations; 2. The level of competition in the industry exceeded expectations; 3. Increased channel traffic costs; 4. Risk of weakening excess traffic.