Key points of investment
Performance Overview: The net profit margin for the same caliber was +45%, and the 24Q1 net interest rate hit a new high in recent years. Profit exceeded expectations by -4%, net profit to mother +11%, net profit to mother +29%, and profit recovery exceeded expectations.
24Q1 revenue of $1.91 billion (-4% YoY, same below), net profit attributable to mother was $260 million (+11%), and deducted from non-return of $290 million (+29%). Of these, non-deductions were mainly changes in the fair value of financial assets and disposal losses of $48.63 million.
Furthermore, there has been a change in the non-profit and loss calculation scale. If calculated according to the same caliber, the first quarter's deducted non-return mother increased by about 45% year-on-year, and its domestic business withholding non-return increased by about 63% year over year. Considering that the net interest rate base for the same period in '23 is no longer low, there is pressure on the revenue side of the compounding business adjustments. Previously, expectations for the company's Q1 performance were relatively neutral, and actual profit side performance greatly exceeded expectations.
Revenue split: The strategy is shrinking low-profit businesses, and overseas and domestic offline channels are still in the adjustment period. The share of revenue by category is 18% skincare +58% personal care products +21% mother and baby +3% partner brands. Revenue is -17%/+4%/-12%/+3% compared to the previous period, respectively. In the first quarter, the company actively contracted low-margin products and channels, and business adjustments affected revenue performance in the short term. In addition, the overseas maternal and child business was also disrupted by factors such as overall weakness in the UK market and reduced marketing investment.
Profitability: Product structure optimization drives an increase in gross margin, the efficiency of division reform releases an increase in the share of high-margin categories, and the results of cost-side optimization are beginning to show. Q1 gross profit margin was 63.3% (+2.1pp). Looking at the detailed breakdown, the sales unit price of skincare/personal care products in a single quarter was +8%/+7% compared to the same period, and the purchase price of raw materials decreased, and the product+cost structure was optimized. Furthermore, the sales/management/R&D expense ratio was 37.2% (-3.5pp)/6.5% (-2.6pp)/1.8% (+0.2pp). We determined that cost-side optimization was mainly due to the release of internal synergy effects after division reform, corresponding to a net interest rate of 13.5% (+1.8pp), achieving a quarter-on-quarter increase since 23Q2. The net interest rate for a single quarter was the best performance since 16Q2.
Outlook: Advanced+Personal Care Renewal, Division Reform to Improve Quality and Efficiency, Beauty Baby Line: Focus on core products, and high-end technology contributes new momentum. Baicaoji continues to focus on the four major product matrices. In '23, the proportion of high-end products has reached 70%, and the brand potential has increased markedly. Corresponding to Q1 traditional e-commerce +49%, of which 38 have promoted GMV +119%. Subsequent high-end anti-aging series will also be launched soon.
Personal protection line: marketing expansion, support for new products, brand renewal and promotion. The US and Canada Net continued the “old baby” traffic potential. The Q1 growth rate was about 44%. Driven by e-commerce interest, offline channels also grew at the same time. Liushen Q2 will launch “anti-itch eggs” and “anti-odor eggs” to create a portable egg matrix and continue to develop younger through product and marketing innovation.
Management: The division system strengthens collaboration, and the results of structural adjustments are outstanding. Since October of last year, division reforms have been implemented to promote brand and sales collaboration, and online and offline collaboration. It is expected that subsequent management flexibility will be further unleashed.
Profit forecasting and valuation
Shanghai Jiahua, a century-old domestic product leader, is deeply involved in beauty and daily chemicals, continues to promote category renewal and channel advancement, and management structure optimization has seen initial results. We have moderately raised our profit forecast. We expect net profit to be 7.0/8.1/93 billion yuan for 24-26, +40%/+15%/+15% compared to the same period; currently, the corresponding PE is 19/17/15 X, maintaining a “gain” rating.
Risk warning: Industry competition intensifies, channel transformation risks, and new product promotion falls short of expectations.