Revenue and net profit attributable to mother in '23 were -28% and -65% year-on-year, 19%, and -52% year-on-year in 24Q1. Short-term performance was under pressure, and steady healthcare released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 8.185 billion yuan, a year-on-year decrease of 27.89%, net profit of 580 million yuan, a year-on-year decrease of 64.84%, after deducting non-net profit of 412 million yuan, a year-on-year decrease of 73.61%, EPS of 0.98 yuan, and plans to distribute a cash dividend of 0.50 yuan (tax included) per share, and a dividend rate of 51%. The company's medical consumables and consumer goods business performance was divided in '23. Demand for infection protection products dropped sharply, revenue fell 46.74% year on year against the backdrop of a high base last year, and consumer goods business revenue increased 6.36% year on year. The profit side decline was greater than revenue mainly due to a decrease in revenue from infection protection products; disposal of infection protection products and infection protection production equipment reduced net profit of about 250 million yuan; and impairment losses of goodwill of about 188 million yuan.
On a quarterly basis, 23Q1-Q4 companies' revenue in a single quarter was +1.28%, -32.48%, -29.82%, and -41.37%, respectively, and net profit attributable to mother was +5.56%, -43.13%, +310.15%, and loss, respectively. The large profit fluctuations in Q3 to Q4 were mainly interfered with the confirmation and recovery of large profits from urban renewal projects.
In terms of the first quarterly report, 24Q1 achieved revenue of 1,909 billion yuan, a year-on-year decrease of 18.84%, and net profit to mother of 182 million yuan, a year-on-year decline of 51.60%. The difference was mainly due to a sharp drop in demand for infection protection products with high gross margins, which led to a decline in gross margin.
The revenue from the medical consumables business in '23 was -47%, gross margin was -4 PCT, 24Q1 revenue -37%. In '23, medical consumables revenue accounted for 47% of total revenue, revenue fell 46.74% year on year, gross margin fell 4.03 PCT to 40.43% year on year; 24Q1 revenue fell 37.3% year on year.
1) By channel, overseas channel revenue accounted for 18% of the company's medical consumables business, and revenue increased 15.4% year on year. Hospitals, e-commerce, and pharmacy revenue accounted for 11%, 8%, and 4% respectively. Revenue was -74.6%, -33.0%, and -43.1%, respectively. Foreign revenue increased 21.3% year-on-year in 24Q1, and all other channels declined to varying degrees.
2) By product: In the medical consumables business, revenue from infection protection products accounted for 11%, revenue fell 80.73% year on year, gross margin decreased 3.69PCT year on year, and total revenue from other conventional products increased 17.3% year on year. Among them, traditional wound care and bandage products, high-end wound dressing products, operating room consumables products, and health and personal care products accounted for 14%, 7%, and 4%, respectively. Revenue was +7.00%, +27.68%, +17.69%, and -5.49%, respectively. Revenue from 24Q1 infection protection products and conventional medical consumables products was -87.6% and +4.3%, respectively.
Revenue from the healthy lifestyle consumer goods business in '23 was +6%, gross margin +4PCT, 24Q1 revenue +7%. In '23, the revenue from the healthy lifestyle consumer goods business accounted for 52%, revenue increased 6.36% year on year, and gross margin increased 3.85PCT to 56.86% year on year; 24Q1 revenue increased 7.1% year over year.
1) By channel: E-commerce/offline stores/supermarkets/major customers accounted for 32%, 17%, 3%, and 1% of the company's healthy lifestyle consumer goods, respectively. Revenue was +1.19%, +18.67%, +4.26%, and +0.12%, respectively.
By the end of 2023, the company had a total of 411 offline stores, a net increase of 20.88% over the previous year. The number of direct-run and franchised stores was 337 and 74, respectively, with a net increase of 7.32% and 184.62% respectively.
2) By product: Non-woven products and non-woven products accounted for 26% of total revenue, with revenue up 2.05% and 11.20% year on year respectively. Among non-woven products, dry and wet cotton towel revenue accounted for 15%, revenue increased 2.77% year on year, gross margin increased 3.43 PCT year on year, sanitary napkin revenue accounted for 7% year on year, and revenue increased 4.16% year on year; infant apparel and adult apparel all accounted for 10% of revenue, revenue increased 0.25% and 21.68% year on year respectively, and gross margin increased 4.60PCT, respectively. 4.43PCT. Revenue from non-woven products and non-woven products increased by 10.0% and 4.0% year-on-year respectively in 24Q1. Among them, wet and dry cotton towels increased 20.0% year over year.
Increased expense ratios eroded net interest rates, and inventory and accounts receivable turnover slowed gross profit margin: gross margin increased 1.61 PCT to 49.00% year-on-year in '23, mainly contributing to the increase in the share of revenue from the consumer goods business with high gross margins. On a quarterly basis, gross margins for the single quarter from 23Q1 to 24Q1 were +3.19, +2.40, +1.10, -0.62, and -3.34PCT, respectively.
Expense ratio: The cost ratio increased 10.34 PCT to 37.19% year over year. Among them, sales, management, R&D, and finance expenses were 25.54% (+7.48PCT), 8.47% (+2.89PCT), 3.93% (-0.36PCT), and -0.76% (+0.32PCT), respectively. The absolute value of sales expenses and management expenses did not change much, mainly due to the corresponding increase in the share of expenses in the context of declining revenue. The fee rate increased by 5.90 PCT year-on-year during the 24Q1 period, which also had a rigid impact on expenses due to the decline in revenue.
Other financial indicators: 1) Inventory decreased by 7.99% year on year to 1,434 billion yuan at the end of March '24, up 1.85% from the beginning of the year. Inventory turnover days were 129 days and 130 days in 23 and 24Q1, respectively, up 34 days and 13 days year on year. 2) Accounts receivable decreased by 17.59% year on year to 769 million yuan at the end of March '24, up 15.23% from the beginning of the year. The number of accounts receivable turnover days in '23 and 24Q1 was 37 days, 39 days, respectively, and increased by 10 and 4 days year-on-year. 3) Asset impairment losses were 394 million yuan in 23 years, up 8.51% year on year. Among them, inventory impairment losses were 190 million yuan, a year-on-year decrease of 42.67%, and goodwill impairment losses were 188 million yuan, an increase in goodwill impairment losses of 23 million yuan, mainly due to the company's mergers and acquisitions in '22, and the performance of the two subsidiaries in Guilin fell short of expectations, with goodwill impairment of 160 million yuan and 0.3 billion yuan respectively; 24Q1 decreased 81.32% year over year. 4) Net operating cash flow was $1,063 billion in 23 years, a year-on-year decrease of 64.36%, mainly due to a decrease in medical business revenue; 24Q1 net outflow was 163 million yuan, and the net outflow rate narrowed by 26.78% year on year.
The performance of medical consumables and consumer goods is divided, and the company's medical consumables and consumer goods business revenue and profitability are expected to return to steady growth in 23 years. In the medical consumables business, revenue declined due to reduced demand for infection protection products, while other conventional products continued to develop steadily. The channel side has bucked the trend overseas. Domestic hospitals have covered more than 6,000 domestic hospitals, and pharmacies have added more than 40,000 to 190,000 new businesses. The expansion results are remarkable. In the consumer goods business, revenue achieved steady growth in 23 years, with an operating profit margin of 11.4% and a steady increase. Among them, the cotton era continued to consolidate brand building, the ranking of the core category industry rose steadily, the sell-out rate of infant clothing and adult clothing reached a record high, the number of inventory turnover days dropped significantly, and product operation efficiency improved. On the channel side, in the cotton era in '23, the number of global members was about 52.42 million, an increase of 21% over the previous year, and the offline growth rate was faster than offline, and the efficiency of offline stores increased about 15% year over year.
In 24, we expect the company's performance to return to steady growth. The medical consumables business will resume growth against the backdrop of a gradual decline in the infection protection product base, further focusing on the deepening cultivation and product strength upgrading of the five major strategic products, including surgical kits; the consumer goods business will continue to promote the construction of all categories, and focus on hot sales and improving operating efficiency. Considering that there is still uncertainty about future domestic and international demand, we lowered the company's 24-25 profit forecast (net profit reduced by 11%/18% from the previous profit forecast, respectively) and added the 26-year profit forecast. Based on the latest share capital calculation, the 24-26 EPS was 1.60, 1.80, and 2.00 yuan respectively, and the 24-year PE was 20 times and 17 times respectively, maintaining the “gain” rating.
Risk warning: weak domestic and foreign demand in the medical consumables sector, changes in industry policies, etc.; weak demand in the consumer goods sector, slowing e-commerce channel traffic growth, rising customer acquisition costs; large fluctuations in cotton prices or exchange rates.