Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1.27 billion yuan, an increase of 42.3% over the previous year; realized net profit of 50 million yuan, an increase of 59% over the previous year; and realized deducted non-net profit of 60 million yuan, an increase of 57% over the previous year. Looking at a single quarter, Q4 achieved revenue of 330 million yuan, an increase of 34.9% over the previous year; realized net profit of 0.3 billion yuan, an increase of 48% over the previous year; and realized net profit after deduction of 0.3 billion yuan, an increase of 49.6% over the previous year. In 2024, Q1 achieved revenue of 290 million yuan, an increase of 28.6% over the previous year; achieved net profit of 0.2 billion yuan, an increase of 956.1% year on year; realized deducted non-net profit of 0.2 billion yuan, an increase of 682.8% year on year, and completed the reversal of losses.
Sales of explosive products on the scalp and shoulders led to revenue growth. By product, the company sold 60.2/28.1/32.3/1.373 million units of eyes/neck/head+scalp/shoulder massagers in 2023, achieving revenue of 190 million yuan/170 million yuan/170 million yuan/480 million yuan respectively, respectively, with year-on-year revenue of -0%/-26.9%/+49.3%/+438.9%; by region, domestic and foreign sales achieved revenue of 1.2 billion yuan/0.7 billion yuan, respectively; by sales model, the company's offline directly-managed stores/stores were respectively 143 households and 44 companies achieved revenue of 590 million yuan/60 million yuan/220 million yuan/260 million yuan/110 million yuan/110 million yuan/110 million yuan respectively for online direct sales/online distribution/online distribution/offline sales, +67.5%/+19%/+16.2%/+32%/+68.7%, respectively. The company's shoulder and scalp explosives grew rapidly, and the increase in sales volume of explosives squeezed the market share of products such as the neck; the decline in overseas revenue was mainly due to the company's strategic contraction of ODM business; in addition, by channel, the growth in offline distribution mainly came from duty-free channels, franchise business, and the addition of Sam channels, and the growth of online direct sales mainly came from the growth of the Douyin platform.
Profitability repair, complete loss reduction. The company's gross margin increased 9.5pp to 59.3% year-on-year in 2023, with gross margins for eyes/neck/head+scalp/shoulder/ lower back massagers were 53.5%/60.8%/62.9%/61.6%, respectively, +3.8pp/+1.8pp/+22.2pp/+6.7pp; by sales model, the gross margin of the company's online direct sales/online distribution/e-commerce warehousing/offline direct sales/offline direct sales/offline distribution sales were 63.1%/42.2%/57.2%/ 67.1%/39.2%, +8.7pp/+6.5pp/+8.2pp/12.5pp/+6.3pp; in terms of cost ratio, the company's sales/management/financial/ R&D expenses in 2023 were 53.9%/4.2%/0.3%/4.6%, respectively, +0.1pp/-0.7pp/+0.3pp/-1.8pp; in terms of net interest rate, the company's net interest rate was -3.9%, up 10pp from the same period in 2022. The company continues to reduce costs and increase efficiency in the production process, and the capacity utilization rate has increased significantly, driving improvements in gross margin, improving profitability, and reducing losses.
Profitability continued to improve in 24Q1, turning losses into profits. The company achieved revenue of 290 million yuan in 2024, up 28.6% year on year; gross margin increased 3.7 pp to 62.8% year on year; in terms of cost ratio, the company's sales/management/finance/R&D expenses ratio in 2023 was 48.1%/4.9%/0.1%/5.1%, respectively, -2.3 pp/+1.5pp/-0.9pp/-0.2pp, respectively, and the cost ratio decreased. Looking at net interest rates, Q1's net interest rate increased 6.1pp to 5.3% year-on-year in 2024, turning a loss into a profit.
Profit forecasting and investment advice. The company's new products and sales led to a restoration of profitability. In 2023, new products accounted for 58.9% of revenue. The cost side actively controlled fees and improved efficiency, achieved a significant improvement in net interest rate, and completed the loss in 2024Q1. The company's 2024-2026 EPS is expected to be 0.99 yuan, 1.44 yuan, and 1.85 yuan respectively, maintaining the “hold” rating.
Risk warning: Showrooms fall short of expectations, new product sales fall short of expectations, and increased competition.