The 2023 results were lower than market expectations. The 1Q24 results were basically in line with our expectations that the company announced 2023 and 1Q24 results. The 2023/1Q24 revenue reached 81.9/19.01 billion yuan, down 27.9%/18.8%, net profit to mother of 58/ 180 million yuan, a decrease of 64.8%/51.6%, deducted non-net profit of 41/140 million yuan, and a decrease of 73.6%/53.5% due to impairment of goodwill affecting profits of about $188 million. The 2023 performance was lower than the market Expectations are that the 1Q24 results are basically in line with our expectations. On a quarterly basis, 1Q/2Q/3Q/4Q23 revenue was +1.3%/-32.5%/-29.8%/-41.4%, net profit without return to mother was -5.6%/-51.2%/-89.2%/-89.2%/loss, respectively.
Development trends
1. In the cotton era, Q1 revenue also increased 7%, and growth is expected to accelerate in the future. Revenue from the consumer goods sector increased 6.4%/7.1% in '23/1Q24, specifically: 1) On the one hand, the company continued to strengthen lower-level R&D and operational efficiency, with adult apparel and other textile products increasing 21.7%/17.1%; on the other hand, the company led the “soft towel” national standard, focusing on core explosives. 1Q24 dry and wet cotton towel revenue increased 20% and market share increased; 2) Channel side: in '23, the revenue of store/online/KA channels increased by 18.7%/1.2%/4.3%, respectively. channel In 23 years of construction, 84 offline exhibition stores (42 direct-operated/franchised) increased store floor efficiency by 15%, online operations were strengthened, and new KA channels continued to expand.
2. In the medical sector, revenue from conventional products in Q1 increased by 4.3%, and the starting base in Q2 declined, and growth is expected to gradually show. In 2023/1Q24, the revenue of the medical sector decreased by 46.7%/37.3% respectively, with conventional products increasing by 17.3%/4.3%, respectively. 1) Conventional medical consumables: On the product side, the company continues to strengthen the bottom level of R&D, improve the category matrix, and continue to grow rapidly, and new categories such as personal care and incontinence products continue to be created, showing synergy with epitaxial targets; on the channel side, domestic companies cover more than 6,000 hospitals and 190,000 OTC pharmacies, and continue to improve the online e-commerce layout. Overseas companies and major customers cooperate steadily. Q1: Overseas revenue increased by 21.3%, and self-branded cross-border e-commerce is also expected to continue to expand; 2) Infection protection products: Q1: Revenue also decreased by 87.6%. We expect the epidemic prevention product base to decline significantly from Q2, and the growth of the medical sector is expected to gradually show.
3. Inventory and goodwill impairment have significantly dragged down profitability for 23 years, and is expected to recover steadily in the future. Gross margin achieved 49%/47.6% year-on-year, +1.6/-3.3ppt year-on-year, respectively. On the expense side, sales/management/finance expense ratios increased 7.5/2.9/0.3ppt in '23, and net margin reached 7.1%/9.6% in '23/1Q24, down 7.4/6.5ppt. Considering the impact of the 23 year epidemic prevention inventory/goodwill impairment on net profit of 25/190 million yuan, respectively, and the adjusted net interest rate after the transfer was 12.5%, we believe that profitability is expected to recover in the future.
4. Shareholder returns have been strengthened, core management is actively increasing their holdings, and subsequent performance is expected to improve. In '23, the company plans to pay a cash dividend of 5 yuan (tax included) for every 10 shares, increasing the dividend rate to 50%, and shareholder returns are improving; in addition, the company announced on January 30 that the core management plans to increase the company's shares. By April 25, the core directors and supervisors will increase their total holdings by 96,800 shares, or about 3.105 million yuan, demonstrating the management's confidence in development. We believe that as a leading medical and health two-wheel drive large health enterprise, the company's core competitive advantage is remarkable. With the decline in the high base and steady, moderate and positive business operations brought about by epidemic prevention, the company's growth is expected to recover.
Profit forecasting and valuation
Considering the significant decline in demand for infection protection products, we lowered our 24/25 profit forecast by 9%/12% to 10.1/1.19 billion yuan. The current price corresponds to 19/16 times P/E for 24/25, maintains a performance rating, and lowered the target price by 17% to 41.3 yuan based on profit forecast adjustments, corresponding to 24/20 times P/E in 24/25, with 30% room for upward movement.
risks
The epidemic has caused the risk of fluctuations in the company's performance, competition intensifies risks, and raw material prices fluctuate.