A soft 3Q prompted for an earnings cut

　　贝泰妮(300957)

　　3Q net profit was in line with both consensus and our estimates, although revenue was c.10%/5% below. We expected a slower 3Q, given 1) part of the consumption has been pulled forward to 618, 2) 3Q has been a traditional slow season and Botanee has historically a lower promotion intensity, 3) cities’ lockdown has jeopardized AOXMED’s offline operation and expansion, in our view.

　　Excluding non-core items, recurring net profits grew 20% YoY to RMB96mn, in line with a 21% top line growth.

　　Double 11 update. Botanee achieved RMB1bn sales on Tmall on the first day of the Double 11 presale. Meanwhile, Botanee is ramping-up its promotion for its new brand Winona Baby and pushed 2 hero products in live -streaming. For its flagship brand Winona, Botanee offered about 8-9 SKUs in its KOL live streaming, according to our survey.

　　Earnings change. To reflect the 3Q results, we cut our 2022/23E revenue by 10.2%/13.9% and this leads to a corresponding 5.4%/ 10.7% cut in net profits for the periods. Our GPM and EBITDA margins remained largely unchanged.Our current forecast implies a 33%/30% growth in 4Q22E revenue and net profits.

　　Valuation. Upon our earnings changes, our new TP is based on roll-forward end-23E 2.0x PEG given the fast-growth outlook but short listing history of the company. Our TP implies a 63.0x end-23E P/E.

　　Other key takeaway from the results

　　GPM was 76.5%, up 0.2pp YoY in 3Q. In our view, skincare SKUs continued to sell well at steady margins, and we think sales mix could have further improved and that slightly drove up the blended GPM.

　　Opex ratio was up 1.2pp and pushed down GPM 1pp lower to 13.7%.