Incident: The company released its 2024 semi-annual report. 24H1 achieved operating income of 4.613 billion yuan, a year-on-year decrease of 17.56%, realized net profit of 0.891 billion yuan, a year-on-year decrease of 42.34%, and realized net profit deducted from non-mother of 0.831 billion yuan, a year-on-year decrease of 42.83%.
Each dosage form showed pressure, and tablets such as ammonia and vitamins decreased significantly. 24H1's revenue performance was under pressure. Among them, 24Q2 achieved revenue of 1.967 billion yuan, a year-on-year decrease of 20.93%. By brand, in terms of domestic business, the main 24Q2 brand achieved revenue of 1.09 billion yuan, a year-on-year decrease of 22.48%; Jianli achieved revenue of 0.218 billion yuan, a year-on-year decrease of 33.74%; Life-Space (domestic) achieved revenue of 0.09 billion yuan, a year-on-year decrease of 17.43%; in terms of overseas business, 24Q2 Life-Space (domestic) achieved revenue of 0.258 compared to 24Q1; in terms of overseas business, 24Q2 LSG (overseas) achieved revenue of 0.258 billion yuan, down 4.44% year over year. We judge that due to various factors such as the overall domestic consumer environment, increased industry competition, and the high 23H1 base, the company's major brands have experienced varying degrees of decline, and the overall domestic business performance is weak.
Increased online competition affects gross margin levels. In 24Q2, the company achieved net profit of 0.164 billion yuan, a year-on-year decrease of 68.12%. 24Q2's gross margin was 66.75%, down 3.57 pcts year on year. According to the company announcement, 24H1's overall gross margin of online direct sales was 72.11%, down 6.15 pct year on year. The gross margin of all dosage forms declined to a large extent. We judge that this is mainly due to increased online competition in the health food industry.
Under the “strong brand” strategy, the cost investment structure is adjusted, brand exposure is enhanced, and high-cost marketing is aimed at enhancing consumers' mentality. The 24Q2 company's net interest rate was 8.19%, down 12.57pct year on year, mainly due to the fact that the cost ratio increased too high year on year. On the cost side, 24Q2 companies' sales/management/R&D expenses rates were 50.64%/6.52%/1.95%, respectively, compared to +7.91 pct/+2.38 pct/-0.15 pct. On the basis of the higher 23Q2 sales expense ratio, 24Q2 still showed significant year-on-year growth, mainly affected by two aspects: 1) High e-commerce platform fees. The cost of the 24H1 platform was 0.532 billion yuan, an increase of 20.48% over the previous year, mainly due to changes in the e-commerce platform structure and increased paid traffic; 2) Maintaining high advertising costs and continuously increasing brand influence. The 24H1 advertising fee was 0.522 billion yuan, a year-on-year decrease of 1.11%, including 0.131 billion yuan for variety shows and 0.204 billion yuan for online advertising. We believe that 24H1 implemented the plan at the beginning of the year, implemented a “strong brand” strategy, adjusted the cost investment structure, increased the share of Class A expenses, increased variety marketing efforts, and increased brand exposure. The direct increase in revenue in the short term or in the positive direction is relatively weak, but the goal is to occupy consumers' minds in the medium to long term.
Looking ahead to the second half of the year, the company proposes to improve the quality of future operations as the core goal, actively adjust and optimize the overall business strategy and cost investment model, and is expected to improve profit levels as much as possible. At the same time, the company will promote the iterative upgrading of the two core products. The replacement of old and new products in the second half of the year is expected to have a certain impact on performance in the short term. In the medium to long term, the company's changes in 2024 may have a positive impact on the company's development for a long time to come.
Investment advice: We believe that in 2024, the company will adhere to the strategy of strong technology and strong brand, comprehensively deepen reforms, and not change the trend of increasing market concentration brought about by continuous investment in medium- to long-term strong brands under short-term pressure. We expect the company to achieve net profit of 1.143/1.467/1.751 billion yuan in 2024-26, -35%/+28%/+19%, EPS of 0.67/0.86/1.03 yuan/share, respectively, and the corresponding PE is 18X/14X/12X, respectively, maintaining the “recommended” rating.
Risk warning: Intense market competition increases risk, risk that market demand falls short of expectations, risk that the company's new product promotion falls short of expectations, and food safety risks.