Key points of investment:
The company released the 618 War Report, which exceeded expectations: According to the company's official account, the company's e-commerce omni-channel performance was outstanding, including 1) Douyin: ranked first, sales increased 290% + year on year; 2) Tmall: ranked second, Tmall flagship store sales increased 120% + year on year, and Maocao increased 270% + year on year; 3) Pinduoduo: ranked second, sales increased 380% + year on year; 4) JD: sales increased 230% + year on year.
With the transformation of the basic product market, successful e-commerce overtaking, steady progress in national expansion, and an enterprising management team, Baiya Freedom Point's brand share is expected to increase at an accelerated pace, and there is plenty of momentum for medium- to long-term growth.
Douyin's potential is gradually spilling over to Tmall, Pinduoduo, etc., and e-commerce revenue is expected to continue to rise high. The company has successfully cultivated strong brand power on the Douyin platform with differentiated product selling points, active channel launch, and continuous iterative upgrades in line with platform trends. Since the second half of '23, the “Freedom Point” brand has continued to rank first on Douyin. Over the past 24 years, Douyin brand traffic has gradually spilled out, and the company's internal e-commerce organizational structure has been adjusted to actively promote other e-commerce platforms. In addition to Douyin, platforms such as Tmall and Pinduoduo are rapidly expanding. In 24Q1, the company's e-commerce revenue increased 150% year on year. Considering the impressive performance of the 618 promotion, it is expected that the company's e-commerce revenue will continue to rise high.
The dividends of “probiotics” products continue, helping to boost new products and increase gross margins. In recent years, the basic product market of the company has evolved. The “sensitive skin” series of products positioned as “big health” was launched in '22, the “probiotic” series of products was launched in May '23, successfully creating a “explosive product”, and the “Probiotic PRO” series was launched in May '24. The products continue to be iteratively upgraded. The revenue share of the company's “Big Health” series increased to 26.2% in '23. The “Big Health” series products are positioned as middle to high-end, and the increase in revenue share has led to a significant improvement in gross margin. At the same time, the “sales points” of “sensitive skin” and “probiotics” are more prominent, which greatly helps the brand “renew”. We believe that the successful transformation of the basic product market is the foundation for the rapid launch of the company's e-commerce and offline nationwide expansion.
The logic of nationwide expansion has gradually been implemented, and the basic markets of the five core provinces have stabilized. ① Five offline core provinces: The company continues to deeply cultivate the core market of Sichuan, Chongqing, Yungui and Shaanxi, ranking first in terms of market share in Sichuan and Chongqing and second in Yungui Shaanxi. Considering that the five provinces continue to promote product upgrades and there is still plenty of room to increase Yungui and Shaanxi's share, it is expected that the revenue of the five core provinces will maintain steady growth. ② Offline peripheral market: 24Q1's peripheral market revenue increased 52.0% year on year. After the organizational structure was adjusted in 23Q2, the company's new market growth accelerated in the second half of 23. 23Q3 and 23Q4 peripheral revenue increased 32.3% and 61.0% year on year, respectively. The company is speeding up the pace of market expansion in peripheral provinces, focusing on Guangdong, Hunan, Hebei and other provinces as key regions. The logic of national expansion continues to be implemented, and the peripheral market is expected to continue to expand rapidly.
The transformation of the basic product market+e-commerce curve overtaking +steady nationalization expansion+enterprising management team are optimistic about the company's growth. We maintained the company's net profit from 2024-2026 to 318, 4.11, and 531 million yuan. The 24-26 profit increased by 33.5%, 29.3%, and 29.2% year-on-year respectively. The current market value corresponds to PE 33, 25, and 20 times. Considering the company's medium- to long-term growth momentum, we maintained a “buy” rating!
Risk warning: Increased competition in e-commerce channels affects profits, and the nationalization expansion process is lower than expected.