Company profile:

The company was founded in 1995, listed on the GEM board of the Shenzhen Stock Exchange on December 15, 2010, and has rapidly grown into a leading brand and benchmark enterprise for dietary nutritional supplements in China.

1. China's VDS industry: steady improvement, long-term growth space can be expected 1) Market size: Driven by multiple drivers, the VDS market continues to expand, and there is still room for improvement in the future. According to Euromonitor International, China's VDS market grew to 225.341 billion yuan in 2023, a much higher growth rate than developed countries. China's VDS industry has been developing for a short time, residents' consumption awareness and habits have yet to take shape, and there is room for high growth in per capita consumption levels. There are three main drivers of market growth: ① the rise in public health awareness combined with lifestyle improvements has led to a jump in health demand; ② the aging of the population has deepened, and the silver economy has brought new growth; ③ changes in the mentality of young people have brought about new consumption forces. According to Euromonitor International, the VDS market will reach 293.153 billion yuan in 2028, and there is room for future growth.

2) Market pattern: ① The share of online channels continues to increase, and e-commerce channels can be expected to grow. Due to multiple policy factors and the impact of the epidemic, the share of online channels continues to increase, gradually surpassing direct sales channels to rank first. In 23 years, the share of online sales has exceeded half. With the development of e-commerce channels, the development of pharmacy channels will continue to be under pressure and shift, and their share may continue to decline. Online channels have become the focus of enterprise deployment; ② Industry concentration is low, and there is still room for improvement in the market share of leading companies. Compared to countries such as Canada and Australia, China's VDS market concentration is lower, and CR5 in '23 was 30%. The main reasons are that the entry threshold for the industry is low and profits are high; product homogenization is serious, making it difficult to form core competitiveness; and leading companies have a low market share. Since '19, Tomson Beijian's market share has maintained the highest market share in the industry, and its market share has continued to rise, reaching 10.4% in '23, with a medium- to long-term target of 15%.

As policies become stricter, supervision is strengthened, and core competitiveness increases, its market share is expected to increase further.

2. The company's core competitiveness: full product matrix, stable offline channel position Product side: ① Product innovation creates core competitiveness, and is expected to overtake corners through policy trends. Proposed “scientific nutrition” for 20 years, and insisted on deploying research in various fields. The number of the company's health food approvals and patents has increased significantly. We believe that under the policy trend of encouraging product innovation and liberalizing applications for new functions in health products, R&D scientific and technological strength accumulated over many years can bring long-term differentiated competitive advantages.

② Continue to advance the big single product strategy and occupy the high ground of market segments. Adhering to the “big single product” strategy for 17 years, Tomson Beijian tried to open up the blue ocean market with big single products in different market segments. In 2023, we have achieved good results in a number of product segments. Offline, many of its brands are in the top five in the category market; online, in the top 10 categories of core e-commerce sales, its six major categories are in the top three brands.

2) Channel side: The leading position of offline pharmacy channels is stable, competitive barriers are consolidated, the overall e-commerce strategy is strengthened online, and high-quality omnichannel growth is enabled. The advantages of offline channels are obvious, and the basic market is stable. In 2018-2023, the company's domestic online revenue accounted for more than 50%. The company focuses on research and development, and the number of approvals is far ahead in the industry. As of June 24, 2024, the company has 158 health food registration approval certificates and 187 health food registration certificates; the e-commerce branding strategy in terms of online channels has boosted the continuous expansion of online channels. At the same time, in line with the development of the times, the company is committed to the Doukuai account, which has been developing well in recent years, to further expand the consumer base. The company's online exclusive products are growing rapidly, and the online market share is far ahead. The sales volume of all of its brands exceeded 0.9 billion yuan during Double 11 in '23.

3. Future highlights: Actively explore online channels internally and gradually promote overseas layout outward 1) Set up a group digital marketing center on the channel side to seize opportunities for online development. In 2024, the company will establish a group digital marketing center to build a network-wide digital media platform and digital platform for members to enable high-quality growth of online platforms such as Doukuei, further strengthen in-depth offline distribution and channel sinking capabilities, and consolidate competitive barriers in offline channels. As of June 2024, the company's main brands will rank in the top ten in the Douyin and Kuaishou platform industries.

2) Overseas clients are actively deploying the Southeast Asian market, and sales are expected to continue to grow. Since 2016, the Southeast Asian health products market has continued to expand. In 2024, the company will continue to explore the core market in Southeast Asia with the Life-Space brand as the main brand, promote localized operations through the establishment of overseas subsidiaries and dealer cooperation, and further expand the sales channel network.

4. Investment advice: The company's 2024/25/26 revenue is expected to be 9.386/10.467/11.733 billion yuan, yoy +0%/12%/12%, and net profit to mother 1.419/1.692/1.981 billion yuan, compared to -18.76%/+19%/+17%. We believe that the company's health product coverage is comprehensive, with 20 x PE for 24 years, a target market value of 28.36 billion yuan, and a target price of 16.7 yuan. For the first time, coverage was given, and a “buy” rating was given.

Risk warning: policy risk, raw material cost growth risk, increased risk of industry competition, risk of uncertainty in new brands and new businesses, risk of capital raising investment projects, risk of product quality and food safety, risk of stock price fluctuations