Maintain an “increase holdings” rating. The company actively underwent a strategic transformation, and e-commerce business was clearly optimized. The 2021-2023 EPS was raised to 0.63 (+0.16) /0.80 (+0.15) /0.96 yuan. Referring to the 40x PE given by comparable companies in 2021, the target price was lowered to 25.2 yuan (original value of 30 yuan).
The 2020 results exceeded expectations, and profitability increased significantly. In 2020, the company achieved revenue/net profit of 994/117 million yuan, +1.97%/+135.72% year-on-year; excluding non-net profit, an increase of 221.64% year-on-year. 2021Q1's revenue/net profit was 245/017 million yuan, a steady increase of +46.53%/+3.93% year-on-year. The company's gross margin decreased by 6.93 pct to 48.34% in 2020, mainly due to the large impact of the epidemic on the company's cosmetics business. Benefiting from more efficient marketing and online platform expansion, the company's sales expenses ratio was -10.73 pct to 32.2% year-on-year, and sales expenses in other categories other than e-commerce platform expenses dropped significantly. The management fee rate was +0.5pct to 5.0%, mainly due to an increase in intermediary service fees and share payment fees.
E-commerce and retail channels are growing at an impressive rate, accelerating the layout of high-growth makeup tracks. Benefiting from channel strategy optimization and adjustment, the company's e-commerce and retail channels achieved revenue of 222 million yuan in 2020, accounting for 22.60% of revenue, +79.91% over the same period; distribution channels remained stable, +0.13% year on year. During the period, the company acquired the cutting-edge makeup brand “VNK” and collaborated with leading KOL to launch a dual-use lip paste for lips and cheeks to accelerate the expansion of the high-growth makeup sector. With the post-pandemic economic recovery, 2021Q1's e-commerce and retail channel revenue share further increased to 29.15%, with revenue +176.63% year-on-year.
Research and development/talent innovation can be expected, and a diversified brand matrix promotes the improvement of management quality. The company's R&D management and incentive mechanism has been continuously improved, Guochao's new product incubation capacity continues to improve, the diversified brand matrix has been stepped up into the skincare and makeup high-growth segment circuit, and the quality of business can be expected to improve.
Risk warning: industry sentiment is declining, market competition intensifies, and new brand development falls short of expectations.