BOTANEE BIOTECH(300957)：ESOP TARGETS STABILIZE EARNINGS EXPECTATION BUT SENTIMENT OVERHANG REMAINS

　　2023 outlook. Despite a miss in 4Q, we think Botanee is set to recover along with China’s reopening, thanks to its OMO distribution network and an unchallenged R&D franchise that differentiates from peers. Our channel check suggested Winona 2M23 sales grew 20%+ on Tmall/ Taobao and 300%+ on Tiktok. For its offline business, we still see huge potential to expand from currently 19% to 26% of total revenue by 2024E, when Botanee only penetrates less than 5% of the national drug stores at present. We believe the trend matches well with Botanee’s premium branding, as shopping experience and direct customer care is prioritized at physical stores. Separately, we expect a relatively stable GPM for 2023E, despite a potentially widening online promotion incentive, thanks to a rising contribution from high-end/ new brands such as AOXMED/ Winona Baby etc. Promotional and R&D expense, in our view, will grow in line with peers in the post COVID era and, hopefully, the inflation would be partially offset by a lower administration expense.
　　Positive takeaway from the restrictive shares incentive plan. Along with　the results announcement, Botanee also reported its ESOP plan for its staff.The plan will grant 1.5% of Botanee’s shares to 298 employees (covering board members and key operation managers) if the stacked revenue and net profits growth is not lower than 28%/ 61.3%/ 100%, respectively, for the year 2023/24/25E. We view this positively as the target likely exceeds market expectation and provides a clear financial guidance to the market.
　　Sentiment overhang remains. Subsequent to the product scandal over the Double 11 campaign last year, the departure of co-founder and the sell-off from a pre-IPO investor continues to weigh on share price. While a replacement for the founder was appointed internally, Botanee will have to reestablish its track record to the market, particularly when the low hanging fruit of livestreaming distribution is gone.
　　Earnings change. To reflect the 4Q results and the ESOP target, we cut our 2023/24E revenue by 9% each and this leads to an average 9% cut in net profits for the periods.
　　Valuation. Our new TP is based on 48.5x end-23E P/E (from 2.0x PEG) that represents -1sd below its average since IPO. We switch our methodology from PEG to P/E as we now have a longer listing history to reasonably track Botanee’s historical valuation. We benchmark our target multiple to -1sd below average to reflect the sentiment overhang mentioned above.
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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。