Incident: The company recently announced its 2023 annual report, with revenue of 3,524 billion yuan/year over year, net profit to mother of 1,452 billion yuan/+44.9% year on year, adjusted net profit of 1,469 billion yuan/year on year +39%. Revenue and profit all achieved high growth exceeding expectations.
Kefomei continues its growth momentum, the trend of all cosmetics categorization continues, and the DTC channel has performed well.
1) By brand, Kefumei and Creigin were +72.9%/-0.3% year-on-year, respectively, accounting for 79.1%/17.5% of revenue, respectively. Clarion was affected by channel strategy, product strategy and brand positioning adjustments. 2) By category, effective skincare/medical dressing/health food and others achieved revenue of +69.5%/+13.2%/-62.5% to 26.5/8.6/0.16 billion yuan, respectively. The revenue share changed +9.1/-7.8/-1.3 pct year over year to 75.1%/24.4%/0.5%, respectively, and the share of cosmetics increased significantly. 3) By channel, DTC store/e-commerce platform/offline direct sales/distribution revenue was +78%/+43%/+40%/+15% to 21.6/1.8/0.9/1.1 billion yuan, respectively, and DTC's share increased by 10pct to 61%.
By the end of '23, the products had covered 1500 public hospitals, 2,500 private hospitals and clinics, 650 pharmacy chains, and 6000 CS and KA stores.
Brand potential continues to expand, verify the logic of individual products, reserve new products and launch them in an orderly manner to improve the product matrix. 1) Kefumei: From dressing to skincare, the logic of large single products continues to be verified. Among them, recombinant collagen dressings are expected to maintain double-digit growth (faster than medical dressings as a whole); the secondary concentrate launched at the end of '21 has grown into a core single product after 2 years of cultivation and incubation, and we expect to account for 30% + of revenue. It was updated in an orderly manner from 23 to 24, including collagen milk, order series, focus cream, etc., which have a lot of room for growth. The core products, collagen bars and dressings, are growing steadily, and the product matrix for all skin care categories is gradually being enriched, which is expected to lead to rapid growth. 2) Clejin: Positioning a comprehensive facial anti-aging and anti-aging solution. Among them, single products such as Anti-Aging Cream and Big Mask King are in the growth period and have performed well; new film eye cream and film cream are in the introduction period, focusing on market cultivation, conversion efficiency, and user reputation. We have been in a period of brand adjustment for 23 years, and the upward trend from the 24-year low base is clear.
Product structure changes slightly affect gross profit margin, and 23H2 cost optimization is obvious. The gross margin in '23 was -0.8 pct to 83.6% year-on-year, mainly due to the increase in the share of cosmetics (the gross margin of cosmetics is lower than that of mechanical products) and the increase in the share of cosmetics categories such as cream and water emulsion (the gross margin of the water cream category is lower than that of essence). Sales/management/R&D expense ratios were +3.1/-2.0/+0.2pct to 33%/2.7%/2.1%, respectively. Among them, sales expense ratios H1/H2 were 35%/32%, respectively, and H2 was significantly optimized month-on-month. The adjusted net margin ranged from -3 pct to 41.7% year over year.
Profit forecast and investment suggestions: As a leader in recombinant collagen, the recombinant collagen circuit continues to be popular. Overseas brands are expected to accelerate market cultivation, and the company is expected to be the first to benefit as a leader; at the company level, the field of professional skincare has achieved breakthroughs in all categories and gradually verified the logic of large single products, and it is expected that growth brought about by steady old products+new product volume; Medical Beauty Line expects 2 injectable injections to be approved to open a second growth curve in 24 years. We expect the company's net profit to be 18/2.6/2.8 billion yuan in 2024/25/26, respectively, and the current stock price corresponding to PE is 24/19/15 times, respectively, giving it a “buy” rating.
Risk warning: Market competition increases risks, new product promotion and consumer acceptance fall short of expectations, medical and aesthetic business progress falls short of expectations, etc.