Incident: Company discloses 23 annual report and 24 quarterly report
2023: Revenue of 6.076 billion/ -4.5%, net profit attributable to mother of 593 million/ -39%, net profit after deducting non-attributable net profit of 490 million/ -42%.
24Q1: Revenue of 1,361 million/ +4.2%, net profit of 243 million/ +22%, net profit after deduction of non-return to mother of 231 million/ +53%. Performance growth exceeded expectations, mainly due to disturbances in the pace of government subsidies.
Revenue side: Major medical and aesthetic products drive growth beyond expectations & ingredients are rising steadily and skin care is still in the adjustment period Ingredients: The raw materials business achieved revenue of 1,129 million yuan/ +15.22%, accounting for 18.59%. Among them, sales revenue of exported raw materials was 517 million yuan, up 21.47% year on year, and sales revenue of pharmaceutical-grade hyaluronic acid raw materials was 401 million yuan, up 18.96% year on year. During the reporting period, the company's strategy for internationalization of pharmaceutical-grade raw materials was successful, cosmetic grade raw material solutions were continuously improved, and the number of customers and depth of cooperation grew.
Medical terminals: In '23, the medical terminal business achieved revenue of 1,090 million yuan/ +58.95%, accounting for 17.95%. Dermatological medical products achieved revenue of 747 million yuan, an increase of 60.29% over the previous year. Among them, the revenue of the company's differentiated advantage category Microcrosslinked Runzhi Doll Needle increased by more than 200% year on year; the company insisted on the family combination application of products, and the revenue of moisturizer fillers increased by more than 250% year on year. Major medical and aesthetic products drove growth that exceeded expectations. Relying on micro-crosslinking, Runzhi Doll acupuncture showed significant differentiating advantages and continued to double growth. Furthermore, judging from pipeline progress, the company's sodium hyaluronate complex solution is in the registration correction stage. The intended use is to correct moderate to severe neck lines. It is expected to obtain a registration certificate in the second half of 2024; water light products have entered the registration stage and are expected to become the first batch of compatible water light adaptation products; self-developed three types of collagen medical device terminal products will soon enter the clinical stage.
Functional skincare: In 23 years, the functional skincare business achieved revenue of 3.757 billion yuan/ -18.45%, accounting for 61.84%, and is still in the adjustment period. After the adjustments were completed, the company ushered in major updates such as the new collagen “energy bomb”, brown rice water 2.0, and blue bandage essence. In preparation for the big promotion, the inflection point of skincare products will become the core guide for the company's business to improve certainty, so we can keep track of the growth performance of the 618 promotion after the adjustment.
Profit side: Q1 profit exceeded expectations. It is expected that the profit inflection point of medicine, aesthetic medicine and raw materials will rise, and the cost side of the skincare business will be adjusted first to drive the upward trend in profits
Gross profit margin: 73.32% /-3.7pct in 23 years, 75.73% /+1.9pct in 24Q1. The 24Q1 gross margin ushered in significant optimization, which is expected to be driven by an increase in the share of mainly high-margin medical and aesthetic products.
Rate: The company's sales expense ratio was 46.78% /-1.2pct and 36.04% /-10.4pct each for 23 years/24Q1. The Q1 sales expense ratio was significantly optimized. On the one hand, due to the increase in the share of medical and aesthetic business, on the other hand, the rate control during the cosmetics business adjustment period was excellent.
Net interest rate: Net interest rate of 23/24Q1 is 9.75% /-5.5 pct, 17.89% /+2.5pct each; net profit margin of 8.0%/-5.3 ct, 17.01% /+5.4pct, 24q1, and profitability increased significantly due to increased gross margin and superimposed rate optimization.
Investment advice: The company's continuous adjustments had remarkable results in Q1. The multiple matrices showed strong business adjustment flexibility. Among them, 1) the medical and aesthetic business took the lead in recovering, and Renzhi Dolls successfully achieved success, driving the profit side of the medical and aesthetic business revenue into a definite upward trend. 2) The raw materials business is steadily improving. Among them, the cosmetics level ushered in an important inflection point of revenue growth and profit improvement in the context of international expansion and competitive withdrawal, and the trend is expected to continue; 3) The Q1 off-season profit of the effective skincare business was adjusted first. With the launch of new products in Q2 after the adjustment combined with active resource investment, the 618 promotion is expected to become a core observation point at an inflection point in business, and it will also become an important indicator for judging the upward inflection point of the company's operations. The estimated 24-26 profit is $8.4, 1.18 billion, and the corresponding valuation is about 35/30/25x, maintaining the “recommended” rating.
Risk warning: competition in the industry intensifies; the management and control of marketing investment expenses falls short of expectations; risk of new brand incubation; risk of errors or delays in third-party data, etc.