Incident: In the context of business adjustments in 2023, the 2024Q1 profit side picked up, and the company released an annual report and a quarterly report: achieved revenue of 6.076 billion yuan (-4.5% year-on-year, same below) and net profit of 593 million yuan (-39.0%) in 2023; 2024Q1 achieved revenue of 1,361 million yuan (+4.2%) and net profit of 243 million yuan (+21.4%). Considering the intense market competition, we lowered 2024-2025 and added the 2026 profit forecast. The company's net profit for 2024-2026 is 8.51 (-2.12) /10.78 (-2.25) /1,356 billion yuan, corresponding EPS is 1.77 (-0.44) /2.24 (-0.46) /2.82 yuan, and the corresponding PE is 34.3/27.0/21.5 times. The company is the leader in the four-wheel drive hyaluronic acid industry chain. We are optimistic that the company will return to steady growth after completing business optimization, have a reasonable valuation, and maintain a “buy” rating.
The functional skincare business did not perform well in 2023. The 2024Q1 sales expense ratio was clearly optimized. Looking at the 2023 business segment, (1) the functional skincare business achieved revenue of 3,757 billion yuan (-18.5%) and gross profit margin of 73.9% (-4.4pct), business adjustments put pressure on operations; (2) the medical terminal product business achieved revenue of 1.09 billion yuan (+59.0%) and a gross profit margin of 82.1% (+1.2pct). Among them, medical/orthopedical/other products achieved revenue of 7.47/2.05/1.38 respectively 100 million yuan, +60.3%/+102.5%, respectively; (3) The raw materials business achieved revenue of 1,129 billion yuan (+15.2%) and gross profit margin of 64.7% (-6.8pct). Increased production costs combined with intense market competition led to a decline in gross margin. In terms of profitability, gross margins for 2023/2024Q1 were 73.3% (-3.7pct)/75.7% (+1.9pct), respectively. In terms of expenses, sales/management/R&D expense rates in 2023 were -1.2pct/+1.9pct/+1.2pct, respectively, while 2024Q1 was -10.4pct/+1.9pct/+0.7pct year-on-year, respectively. The decline in sales expenses in the first quarter is expected to be mainly due to the company's brand resource allocation and marketing channel structure optimization results.
Four-wheel drive builds long-term competitiveness, and looks forward to completing the company's transformation and revitalization. Looking forward to 2024. Raw materials: It will focus on new business areas and overseas market expansion, and strengthen independent innovation in various fields.
Medical terminals: It will further cultivate the orthopedic market and adhere to the application of a family combination of medical and aesthetic products. In addition, neck needles are expected to be approved as Class III devices in 2024H2, and compliance water light has also entered the registration process. Functional food: Strengthen the brand, R&D, and organization simultaneously, and look forward to future increases in contributions. Functional skincare products: Its four major brands, Revitalizing, Quadi, Mibel, and Muscle Active, are all based on products and channels to continue to strengthen brand mentality, and a return to high growth can be expected.
Risk warning: promotion of terminal products falls short of expectations, risk of loss of core personnel, and intensification of industry competition.