BOTANEE(300957)IN-DEPTH TRACKING REPORT：UNRIVALED SENSITIVE SKINCARE LEADER WITH BIG STRIDES IN SKIN HEALTH ECOSYSTEM

Botanee has been far outrunning its peers in the niche of sensitive skincare products, with a strategic direction of creating a skin health ecosystem with a multi-brand matrix in areas such as soothing, anti-aging, post-surgery immediate recovery & efficacy enhancement, acne care, etc. The filing of new raw materials and new products has entered the peak period, and its flagship products are poised to be upgraded. Its new product of Camellia-Lucent Spot-Correcting Essence under the Winona brand has kick-started a social dialogue for science communication while innovating skincare formulas. The freshly minted brand Beforteen has come up with a tiered acne treatment by integrating artificial intelligence (AI) capabilities, providing a clear path for new product lines. We believe that Botanee’s share price has fully reflected short-term headwinds. Considering the marginal improvements in the product matrix, content marketing, and organizational structure, we maintain our target price of Rmb133 and reiterate the "BUY" rating.
Unrivalled sensitive skincare leader with a clear strategic direction of building a skin health ecosystem. According to Euromonitor, Botanee's flagship brand Winona ranked first in China's dermocosmetics skincare product market, and its market share continued to increase (at above 23% in 2022). Building upon the success of its sensitive skincare products, Botanee has expanded from the perception that “Botanee equals Winona and sensitive skincare” to “Botanee represents skin health ecosystem” and its skincare products have expanded from sensitive to sensitive plus, anti-aging (Aoxmed), acne (Beforteen) and other areas. In the meantime, it has extended its presence into functional food and beverage, medical beauty, and other fields.
New raw materials & new products: Innovation starts from ingredients; filings for new products have entered the peak period. Botanee's R&D investment has increased rapidly, with R&D investment of nearly Rmb280mn in 2022. The R&D expense ratio increased to 5.6% while the R&D team expanded to nearly 400 personnel. 1) New raw materials: Based on the treasure house of Yunnan's characteristic plants, Botanee filed a new raw material Ludwigia Adscendens in Jul 2023 and is poised to launch more new raw materials and apply them to new products in the future. 2) New products: New product filings have been advancing steadily, and the number of new product filings of the Company in 7M23 reached a total of 47, enabling it to expand categories and efficacy. We estimate that the omni-channel operating revenue of the flagship product Sensitiveness Relieving Moisturizing Tolerance-Extreme Cream in 2022 was about Rmb800mn, corresponding to sales of Rmb1.1bn-1.2bn, ranking at the forefront in the domestic market. The Sensitiveness Relieving Moisturizing Tolerance-Extreme Cream has been on the market for more than 6 years and is poised to be upgraded next year. At the same time, the classic packaging of Winona branded products is also likely to be renewed, visually enhancing the sense of product range and a consistent brand image.
New marketing: New product Camellia-Lucent Spot-Correcting Essence employs social dialogue for science communication. 1) Medical background, efficacy, professional image. Botanee strengthens its professional image in the minds of doctors and consumers and leads the development of the industry by holding the China Sensitive Skin Summit Forum, inviting authoritative dermatology experts to discuss frontier research, and publishing professional industry reports. 2) Social language, scientific communication, and marketing advances. On Jul 4, 2023, the Company launched the Winona Camellia-Lucent Spot-Correcting Essence, and the sales volume on Douyin Super Product Day (Jul 6 to Jul 12, 2023) reached 25,000 boxes, and the gross merchandise volume (GMV) reached Rmb12mn. Starting off with the four factors contributing to skin darkening, the Camellia-Lucent Spot-Correcting Essence adopts the whitening concept of "comfort, repair, adjustment, and resistance" and the skincare formula of "repairing first and then whitening" to engage in social communications. In Aug 2023, Winona's official WeChat public account launched the repair formula of “soothing before nourishing” to double the effect while realizing combination sales as the Company continues to move towards social dialogue and scientific marketing.
New brand: Building a multi-brand matrix. In 2022, the Winona brand recorded revenue of Rmb4.89bn, and we estimate that the retail sales could be around Rmb6bn-7bn. At present, the Company has sub-brands such as Winona Baby (baby skincare), Aoxmed (professional beauty post-surgery immediate repair and effect enhancement), Beforteen (acne graded care) and so on. Among them, the Beforteen brand uses AI to accurately diagnose acne grades (based on more than 3mn skin images and text data). Consumers only need to take 3 photos through Beforteen’s WeChat mini program to assess their acne situation in real time and get a customized package of "makeup + medicine + food" solutions. In Aug 2023, Beforteen launched a series of skincare products for different acne grades, including Purifying White, Clear Silver, Clear Acne Ash, and Repair Blue, with main products such as dot gel and secondary serum, as well as oral products such as functional drinks.
Orderly sell-downs, appealing valuation, and share buybacks. 1) Sell-downs: Since Apr 2022, the three major strategic investors have reduced their holdings by a total of about 12.83% in eight rounds of sell-downs, and their combined holdings at present account for about 23.48% of the total share capital (Sequoia Juye 14.58%, Zhenli Consulting 6.54%, and Chonglou Investment 2.36%). 2) Valuation: The current price corresponds to a historical low of about 34x 2023E PE, which is 25% of the historical peak of 134x PE in 2021. 3) Buybacks: On Sep 5, 2023, Botanee announced a buyback plan, proposing to use Rmb100mn-200mn of its own funds to repurchase shares (with a price cap of Rmb130 per share) for the purpose of equity incentive plans or employee stock ownership plans (ESOP). Based on the repurchase price of Rmb130, we estimate that the number of shares to be repurchased is about 769k-1,538k shares, accounting for about 0.18%-0.36% of the Company's total share capital.
Potential risks: A slip in residents' willingness to buy consumer discretionary items such as skincare products; high online traffic costs; the incubation of the Company's new products and brands failing to meet expectations; business expansion, ecosystem construction, and others adding challenges to the Company's management; intensified competition; short-term stock price disruptions by sell-downs.
Investment recommendation: Botanee has a clear strategy of focusing on sensitive skin to create a skin health ecosystem with a multi-brand matrix in areas such as soothing, anti-aging, post-surgery immediate repair & efficacy enhancement, etc. We believe the current share price has fully reflected various challenges, and we have noticed multi-dimensional marginal improvements in product matrix, content marketing, and talent pooling. We maintain our 2023E/24E/25E operating revenue forecast of Rmb6.42bn/8.09bn/10.04bn and ANP forecasts of Rmb1.26bn/1.59bn/2.04bn (+19.5%/+26.7%/+28.4% YoY). After excluding the impact of incentive expenses, our 2023E/24E/25E adjusted ANP forecast would be Rmb1.35bn/1.70bn/2.10bn (+28.0%/+26.0%/+24.1% YoY). Factoring in the Company's growth potential across multiple business segments, leading position and barriers to competition in sensitive skincare, and ability to fend off risks, and taking the valuation of comparable peers as a reference, with Bloomage Biotech (688363.SH)/Proya (603605.SH)/Marubi (603983.SH) trading at 39.7x/38.8x/37.1x 2023E PE based on Wind consensus expectations as of the closing on Sep 7, 2023, we assign 45x 2023E PE to derive a target price of Rmb133 for Botanee and reiterate the “BUY” rating.
【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。

   【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。