Incident: The company 24H1 achieved operating income of 4.61 billion yuan, -17.6% year on year; net profit of 0.89 billion yuan, or -42.3% year on year; net profit after deducting non-return to mother of 0.83 billion yuan, or -42.8% year on year. Among them, 24Q2 achieved operating income of 1.97 billion yuan, -20.9% year on year; net profit of 0.16 billion yuan, or -68.1% year on year; net profit of 0.12 billion yuan after deducting non-return to mother, -73.5% year over year.
Demand is weak, and the revenue of major brands is under pressure. (1) By brand: 24H1 ① main brand “Tomson Beijian” achieved revenue of 2.635 billion yuan, YOY -19.77%. ② The joint care brand “Jianli Duo” achieved revenue of 0.591 billion yuan, YOY -16.81%. ③ “Life-Space” achieved domestic revenue of 0.21 billion yuan, yoy -24.79%; overseas LSG achieved operating income of 0.511 billion yuan, yoy -4.72% (0.108 billion Australian dollars in Australian dollar caliber, -5.37% year on year). (2) By channel: Under the distribution model, 24H1 ① offline channel revenue was 2.477 billion yuan, YOY -16.67%. ② Online channel revenue was 0.728 billion yuan, yoy -22.15%. The number of domestic and foreign dealers decreased by 131 to 862 in 24H1, of which the number of domestic dealers decreased by 130 to 808; the number of overseas dealers decreased by 1 to 54.
The rise in raw material prices has put pressure on gross margins, and the decline in cost investment efficiency has increased the decline in profits. 1) The gross margin of 24H1/24Q2 companies was 68.56%/66.75%, respectively, -1.76/-3.57pcts year-on-year. The year-on-year decline in gross margin is related to the 172.4% year-on-year increase in the purchase unit price of fish oil, one of the raw materials. 2) The sales expenses ratio of 24H1/24Q2 companies was 39.49%/50.64%, respectively, +6.82/+7.91 pcts. The sales expense ratio increased a lot year-on-year. In addition to the decline in revenue, it is also related to platform fees of +20.48% compared to the same period, mainly due to changes in the e-commerce platform structure and the increase in paid traffic. 3) The 24H1/24Q2 management expense ratios were 5.5%/6.52% respectively, compared with +1.83/+2.38pcts, mainly due to increased equity incentive costs, leasing and property management expenses. 4) Overall, 24H1/24Q2's net sales margin reached 19.08%/8.19%, -8.91/-12.57pcts year-on-year.
Under a high base, it is more difficult to achieve goals for the whole year, so pay attention to the performance of the new product market. Demand for products related to enhancing immunity increased in 2023, boosting the industry and company base for the same period; in addition to the decline in 24H1 revenue, it is expected to put some pressure on achieving annual revenue targets. As we enter the third quarter, the pressure on the base figure is expected to gradually ease. The company will strive to achieve revenue growth in the second half of the year by continuing to develop new products (in 24 years, the company iteratively upgraded its two main products, protein powder and Jianliduo, among which the upgraded products have been launched and have now begun to be delivered to some dealers) and consolidating offline channel advantages (by focusing on key categories, boosting new retail, and strengthening in-depth offline distribution).
Profit forecast, valuation and rating: Considering weak demand and sales expenses remain high in the short term, we lowered our 24-26 net profit forecast to 1.229/1.423/1.57 billion yuan (down 37%/36%/37%, respectively), corresponding to 24-26 PE 18x/16x/14x, respectively. The company is a leading company in the dietary supplements industry, and the industry still has growth prospects and maintains an “increase” rating.
Risk warning: Increased industry competition, food safety issues, and increased pressure to slow economic growth.