Core views
Affected by the industry base, the company's performance in the first half of the year was under pressure. Platform fees and brand expenses increased in the short term, and profits were under pressure in the short term. Medium- to long-term companies are expected to improve investment efficiency and improve profitability. The company reformed its internal sales management structure to improve the efficiency of strategy formulation and resource allocation. In February '24, the company raised its equity incentive targets for the new phase, optimistic about the company's multi-category development potential, and continued to lay out the blue ocean circuit through the big single product model. At the same time, the company announced a significant increase in the dividend rate. Since listing, the company's cumulative cash dividend amount accounts for more than 70% of the cumulative net profit attributable to shareholders of listed companies, actively giving back to all shareholders.
occurrences
Company Releases 2024 Interim Report
The company's 24H1 revenue was 4.61 billion, down 17.6% year on year; net profit to mother was 0.89 billion, down 42.3% year on year; after deducting non-net profit, 0.83 billion yuan, down 42.8% year on year.
Among them, 24Q2's revenue was 1.97 billion, down 20.9% year on year; net profit to mother was 0.16 billion yuan, -68.1% year on year; after deducting non-net profit 0.12 billion, -73.5% year over year.
Brief review
Revenue is under pressure from a high base, waiting for demand to recover
Affected by the high base for the same period last year, the company's overall revenue for the first half of the year was under pressure.
(1) By brand: the main brand “Tomson Beijian” achieved revenue of 2.635 billion yuan, down 19.8% year on year, of which single Q2 revenue was 1.09 billion yuan, down 22.5% year on year; joint care brand “Jianli Multi” achieved revenue of 0.591 billion yuan, down 16.8% year on year, of which single Q2 revenue was 2.2 yuan, down 33.7% year on year; “Lifespace” domestic products achieved revenue of 0.21 billion yuan, down 24.8% year on year. Q2 revenue was 0.09 billion yuan, down 17.4% year on year; overseas LSG achieved operating income of 0.511 billion yuan, down 4.7% year on year, of which single Q2 revenue was 0.26 billion yuan, down 4.4% year on year (in Australian dollar terms:
(LSG's revenue was $0.108 billion, down 5.4% year over year).
(2) By channel, offline channels achieved revenue of 2.629 billion yuan, a year-on-year decrease of 15.82%; online channels achieved revenue of 1.953 billion yuan, a year-on-year decrease of 20.54%.
Profitability is under pressure due to sales expense ratios
The company's gross profit margin for the first half of the year was 68.56%, of which Q2 gross profit margin was 66.75%, down 3.57 pcts year on year. It is expected to be mainly affected by online sales policies. The company's domestic online gross profit margin in the first half of the year was 72.26%, down 3.61 pcts year on year, dragging down the overall gross profit margin. The company's sales/management expense ratio for the first half of the year was 39.49%/5.5%, +6.82/+1.83 pcts, of which the Q2 sales/management expense ratio was 50.64%/6.52%, and +7.91/+2.38pcts. The increase in sales expenses was mainly related to the short-term decline in the company's revenue and the weakening of scale effects. Management expenses were mainly due to the increase in equity incentive expenses, leasing and property management expenses in the first half of the year. Due to the cost ratio dragged down, the net interest rate for Q2 was 8.36%, down 12.37 pcts year over year. The company insists on implementing the “multi-brand, all-category, omni-channel single focus” strategy. With the gradual improvement of the company's operating capacity, there is still room for optimization of sales expenses. The sales expenses rate is expected to transition to 35%-40% within the next 3-5 years, waiting for industry demand to recover.
Profit forecasting and investment suggestions: The company reformed the internal sales management structure, divided offline pharmacy channels into regions, established a large single product division at the group level, etc., to improve the efficiency of strategy formulation and resource allocation. The company continues to lay out a blue ocean circuit with high potential for future growth through the large single product model. Equity incentive targets are raised, which is beneficial to the development of multiple categories in the short term. Revenue in the first half of the year is under pressure, waiting for demand to recover. The second half of the year is expected to improve sequentially. We expect the company's revenue for 2024/2025/2026 to be 9.506/10.342/11.25 billion yuan, up 1.1%/8.8% year-on-year, and net profit to mother of 1.45/1.813/1.975 billion, respectively, -16.9%/25.0%/9.0% YoY, maintaining the “buy” rating.
Risk warning:
1. Food safety issues; the company's products focus on health and health benefits, and the processing and production process requires strict control. If there are many adverse reactions or food safety accidents, it will have a negative impact on the company's image products. 2. Increased competition: As capital enters the market, emerging influencer brands can use new channels to rapidly rise and generate higher sales in some segments. Fierce competition within the industry may cause brands to cut back sharply in order to seize market share, causing the industry's profit level to decline. 3. Online traffic is declining, and online turnover may not continue to grow. 4. The economy is weak, residents' spending power has declined, and residents' desire to buy optional foods has declined. 5. The share transfer dispute between the company and Yitong Century Technology Co., Ltd. over Beitai Health is still in the second trial. If the company loses the lawsuit in the second instance, it will have an impact on profits.