BLOOMAGE BIOTECH(688363)2022 EARNINGS PREVIEW：FULL-YEAR RECURRING ANP MARGIN IMPROVES DESPITE 4Q22 DRAG

　　Bloomage preannounced its 2022 earnings, expecting operating revenue of Rmb6.36bn, up 28.5% YoY, and attributable net profit (ANP) of Rmb970mn, up 24.0% YoY. The Company maintained solid earnings in 2022. While the revenue growth in 4Q22 missed expectations as a result of the pandemic, the profitability of the skincare segment improved, bolstering its ex-one-off ANP margin. Looking ahead to 2023, we believe the profitability of the skincare segment will continue to improve and the magnitude of improvement will depend on revenue growth and marketing efficiency.
　　 Ex-one-off ANP margin was 13.6%, up 0.2ppts YoY.
　　Bloomage released the unaudited 2022 results, anticipating revenue of Rmb6.36bn (+28.5% YoY) and ANP of Rmb0.97bn (+24.0% YoY), with the ex-one-off ANP at Rmb0.86bn (+30.1% YoY). Ex-one-off, or recurring, ANP growth outpaced revenue growth, indicating an uptrend in the ex-one-off ANP margin. Based on the preliminary 2022 results, we estimate the 4Q22 operating revenue at Rmb2.04bn, implying 5.3% YoY growth, missing our expectations due to serious Covid disruptions, especially from late Nov to Dec 2022. We estimate the 4Q22 ANP at Rmb290mn (+28.9% YoY), basically in line with our expectations, and the ex-one-off ANP at Rmb260mn (+20.9% YoY).
　　High growth in functional skincare products, steady growth in raw materials business, and a slight decline in the medical device business.
　　Based on the preliminary 2022 results, we try to break down the revenue by segment. 1) Raw materials revenue may approximate Rmb1bn, with high single-digit YoY growth. Specifically, pharmaceutical grade hyaluronic acid (HA) raw materials may see rapid growth, bolstering the overall gross profit margin of the raw materials segment; cosmetic grade raw materials were dampened by the lackluster industry environment, but the proportion of high-end products rose, injecting a structural boost to the GPM. 2) Medical device revenue may have declined moderately to about Rmb700mn, including a decline in own-brand HA fillers. 3) Functional skincare product revenue could reach about Rmb4.6bn (+40% YoY). In a breakdown by brand, revenues from Biohyalux/QuadHA are both likely to fall in the range of Rmb1.35bn~1.4bn, implying growth of 10%-15%/40%-45% YoY, respectively; MedRepair revenue may grow by c.40% YoY while Bio-MESO revenue may exceed Rmb1bn.
　　Margins of skincare products improved, driving the recurring ANP margin to pick up for the first time since 2018.
　　According to our calculation, the operating revenue share of functional skincare products may increase from 67% to 73% in 2022 and the overall ex-one-off ANP margin may increase moderately thanks to a lower selling expense ratio and a higher GPM of functional skincare products. We infer that the selling expense ratio of skincare products stood at about 52%~53% in　　1H22, down 5ppts YoY mainly as a result of 1) a marginal improvement in competitive landscape, 2) a rising proportion of self-livestreaming and a lower proportion of super streamers, 3) stronger bargaining power due to the multi-brand strategy and rising economies of scale, and 4) marketing efficiency improvement. We reckon that the increase in the profitability of functional skincare products in 2H22 is not as significant as that in 1H22 because of the consumer environment and Covid disruptions in 2H22, but could signal an extended YoY improvement compared to 2H21. Looking ahead to 2023, we believe the uptrend will continue and the magnitude of improvement will be subject to revenue growth and marketing delivery efficiency.
　　Potential risks:
　　Intensified competition in medical devices and skincare products; monetization of the Company’s R&D investment misses expectations; medical beauty regulation tightens more than expected; synthetic biology requires large initial R&D spending and fixed asset investment while revenue growth may miss expectations.
　　Investment recommendation:
　　According to the 2022 unaudited results and considering the impact of the pandemic on Bloomage's operations at the end of 2022, we lower our 2022E/23E/24E ANP forecasts to Rmb0.97bn/1.24bn/1.57bn (vs prior forecasts of Rmb1.02bn/1.34bn/1.73bn), up 24.0%/28.2%/26.6% YoY (vs prior forecasts of +30.5%/+31.6%/+28.8% YoY), implying EPS estimates of Rmb2.02/2.59/3.27. Considering the above factors and peer valuation-wind consensus of 37x 2023E PE for Botanee (300957.SZ), 54x 2023E PE for Proya (603605.SH) and 62x 2023E PE for Imeik (300896.SZ) as of the closing on Feb 28-we assign 58x 2023E PE to derive a target price of Rmb151 and reiterate the "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。