On May 9, 2023, Aidigong (0286.HK) successfully held the company's strategic upgrade exchange meeting, and discussed the implementation of the company's strategic goals and future development blueprint in the 2.0 sub-era with investors. This strategy aims to promote the company's sustainable business growth and consolidate its position in the industry by optimizing its service model, expanding its market coverage and enhancing its brand influence.
The clock has been set to this year, and Aidigong recently released its 2023 financial report. Let's go through this annual report just released not long ago to observe the real development of Aidi Palace after nearly a year of the implementation of the strategic goal of "five years and fifty cities"?
Turnaround and profitability significantly restored
On the whole, Aidigong's 2023 annual financial report can be summarized in eight words: "steady growth, full of momentum".
According to the data, in 2023, Aidigong will achieve revenue of HK $555 million, a decrease from the same period last year. The decrease was mainly due to the depreciation of the RMB against the Hong Kong dollar. In addition, due to the significant decline in the number of pregnancies in the current period due to factors such as prevention and control from December 2022 to January 2023, the number of newborns from September to November 2023 has been affected, which has had a certain impact on the confinement service industry. However, this type of impact is a one-time event and is often referred to as non-recurring profit or loss, which also means that the impact of such items on Aidigong's revenue is temporary and does not reflect the company's true operating level.
In contrast, core indicators such as gross margin and adjusted net profit, which reflect profitability, are more reflective of the company's true operating conditions.
From the perspective of profitability, the company's gross profit reached HK $121 million, a year-on-year increase of 22.6%, and the corresponding gross profit margin was 21.8%, a significant increase of 7.3 percentage points compared with 14.5% in the same period last year. At the same time, the company achieved a turnaround at the business level, with an adjusted profit of HK$15.727 million, an increase of HK$71.828 million over the same period last year. Among them, the net profit of the confinement center business reached HK $11.7 million.
Financial summary of the company
Source: Company financial report
From a macro perspective, the recovery of the external environment has laid the foundation for Aidigong to turn losses into profits. According to the National Bureau of Statistics, in 2023, the total retail sales of consumer goods will 471495 billion yuan, an increase of 7.2% over the previous year. As an industry with strong consumption attributes, the operation of enterprises in the confinement service business is deeply affected by the domestic consumer market. In addition, with the liberalization of public health regulations, the additional operating costs incurred by adopting stricter epidemic prevention measures to ensure the health and safety of mothers and newborns during the epidemic will also be reduced. In this context, the confinement service business of Aidigong has gradually emerged from the impact of the epidemic and has grown steadily, and has quickly entered the stage of profit recovery.
Image source: National Bureau of Statistics
But obviously this is not enough to explain the performance of Aidigong turning losses into profits and significantly increasing profitability, and more importantly, it is from the perspective of the company itself to look at the key changes of Aidigong in the past year.
This is largely reflected in the fact that the company has run through the extremely asset-light model. As early as 2021, Aidigong has begun to explore an innovative ultra-light asset model, which can not only occupy the market with agility, but also effectively resist market fluctuations and reduce the risk of losses.
At the heart of this model is "small-scale service units plus flexible room leasing", where only the necessary small-scale service space is leased initially, and then the lease area is flexibly increased according to business needs. Different from the traditional large-scale store construction method, this model allows for the rapid opening of new stores by leasing properties of different types and sizes, such as independent parks, hotels, serviced apartments, pure apartments or resort garden villas, thereby lowering the initial investment threshold and improving the market response speed.
In addition, this strategy has other significant advantages. On-demand leasing can effectively reduce the upfront cost of a new store and reduce the loss caused by vacant rooms in the process of increasing occupancy. By running through this model, Aidigong can not only shorten the payback period, but also improve the return on net assets of investment, which greatly improves the company's profitability.
At the same time, Aidigong has made great efforts to reduce costs and increase efficiency. By adopting innovative marketing methods, the company has further reduced marketing costs while effectively improving marketing efficiency. For example, the series of IP image blind boxes launched by the sub-brand Yuegege received a warm response from the market and great welcome from consumers as soon as they appeared in the marketing campaign, especially the limited edition blind boxes, which were quickly sold out. This innovative marketing method is deeply loved by users, and it stimulates their enthusiasm for active participation and interaction, which greatly improves marketing effectiveness. According to the financial report, in 2023, the company's sales and marketing expenses will be HK $116 million, a year-on-year decrease of 21.7%.
The five-year 50-city plan has been smoothly promoted, and the growth momentum is full
In addition to turning losses into profits, profitability has been significantly enhanced, by digging deep into the financial report of Aidigong, understanding the company's business progress in the past year, you will find that under the promotion of the strategy and business operation of Aidigong 2.0 month, its growth rate is also relatively bright, and it is constantly raising the company's imagination. This is what we need to review next.
On the whole, the growth strategy of Aidigong is clear. Through a series of explorations and innovations in the past three years, a standardized operation service system has been established, and on this basis, the company has made full preparations for the rapid growth of Aidigong by developing new expansion strategies and implementing multi-brand differentiated operations.
First, let's look at the progress of the five-year 50-city plan. During the year, the Innovation Aidigong Division opened the Aidigong brand Confinement Center Xiamen No. 1 Store, Dongguan No. 1 Store and Guangzhou No. 1 Store respectively at InterContinental Xiamen Seaview Hotel, Wanda Vista Dongguan and Jumeirah Guangzhou Hotel. As of December 31, 2023, Aidigong has completed the market coverage in ten cities: Shenzhen, Beijing, Chengdu, Zhuhai, Xiamen, Dongguan, Wuxi, Quanzhou, Guangzhou and Fuzhou, with a total of 18 stores (centers) opening and operation.
In the first year, while the coverage of ten cities was successfully implemented, Aidigong also continued to deepen its business layout in the cities already covered. Taking the Zhuhai market as an example, after opening the Zhuhai No. 1 store in Zhuhai in 2022, the Yuegege Brand Division opened the Zhuhai No. 2 store in less than six months. Last year, the company once again opened the third store in Zhuhai in the same city to further enhance the company's market share in Zhuhai. This also verifies that after the ultra-asset-light model is put through, the five-year 50-city plan is steadily advancing, and the upward growth potential is full.
From this point of view, in view of the diversification and continuous changes in consumer needs, according to regional characteristics, customer needs and the different stages and needs of pregnant women, the new brand "Yuegege" to meet the market segmentation needs has laid its unique brand advantage in the expansion, and can expand as a new independent brand.
In addition, there is a brand new business that deserves attention. In December 2023, the Aidigong Division successfully launched a new non-residential maternal and infant confinement service business and opened service centers in Quanzhou and Fuzhou. The launch of this new service not only marks the official entry of Aidigong into a new field of family confinement services. More importantly, the company has achieved comprehensive coverage of the national maternal and infant confinement service market through its Aidigong, Yuegege and combined Aidigong brand service centers.
Image source: The company's official website
Judging from the development and expansion of Aidi Palace last year, the company has continuously expanded the boundaries of the city through multi-team operations, thereby accelerating the increase in urban penetration. All of these demonstrate the leading position and strong market competitiveness of Aidigong in the industry.
Driven by policy demand, long-term growth potential is promising
From an elongated perspective, the market is also constantly releasing positive signals, injecting strong impetus into the development of the confinement service industry, and leading enterprises in industries such as Aidigong are ushering in rare opportunities.
From the policy side, the mainland's fertility policy proposed a single two-child policy at the end of 2013, a comprehensive two-child policy at the end of 2015, and a three-child policy and its supporting measures in 2021.
Along the way, the country's understanding of fertility and fertility support has become more and more profound, and measures to boost fertility have become more and more sophisticated. In this year's "Government Work Report", it is also stated that we will improve the birth support policy, optimize the maternity leave system, improve the reasonable sharing mechanism of labor costs for business entities, increase the supply of childcare services through multiple channels, and reduce the burden of family childbirth, parenting and education. In the context of continuous policy efforts to guide fertility, it is expected to promote the population development of the mainland.
As the first link in serving the new population, the confinement service industry can directly benefit from the change in the number of new population. Therefore, the introduction of various policies is of great significance to the entire confinement service industry, and the industry is expected to be further supported by policy optimization and gain more development momentum.
From the market side, in the short term, given that this year is the Year of the Dragon in the Chinese lunar calendar, the dragon, as one of the symbols of the Chinese nation, has always been endowed with auspiciousness, dignity and strength, so many families want to have a child born in the Year of the Dragon. Against such a cultural backdrop, it is foreseeable that more couples will be actively planning to conceive and have children this year. To a certain extent, this phenomenon may have a positive impact on industries such as confinement centers, increasing the demand for the services of these institutions.
In the long run, in March this year, the Guangzhou Consumer Council released a survey and analysis report on the service status of confinement centers. The survey results found that the current consumers of confinement centers are mainly post-90s families, of which 42% are between the ages of 25 and 29. Their primary concern is the quality of maternal and infant care, reflecting the growing interest of a new generation of consumers in maternal and infant care.
In addition, post-90s women are also very concerned about whether technology can bring more comprehensive solutions for maternal and child services, and whether service providers can provide more emotional care and value while maintaining professional standards. Therefore, these young women pay more attention to personal feelings and satisfaction, which is not only reflected in physical recovery and body shaping, but also includes the maintenance of mental health and the realization of personal values. They put more emphasis on the subjective feeling of "pleasing themselves", and hope that the services they receive during the confinement period can meet these diverse needs.
As an industry that provides high-end professional services, confinement centers have been affirmed by most consumers. According to the results of the questionnaire survey, the satisfaction rate of the confinement center reached 81.8%.
Compared with the increasing consumer willingness, the penetration rate of domestic confinement centers, as an emerging industry, is lower than that of mature markets, less than 5%. According to the data of the "2023-2024 China Confinement Center Operation Big Data and Industry Trend Analysis Report", in terms of market size, the market size of China's confinement centers will reach 22.3 billion yuan in 2022 and is estimated to reach 24.33 billion yuan in 2023. According to the forecast of relevant people in the industry, it is expected that the scale of China's confinement industry is expected to exceed 30 billion yuan by 2024, and Debang Securities estimates that it is expected to reach 45.5 billion yuan in 2025.
Image source: Internet
This also means that the scale of the confinement market will continue to increase driven by multiple factors such as the introduction of industrial policies, the improvement of the consumption level of the younger generation of women, and the change of consumption concepts. Some industry insiders pointed out that in the next 10 years, the penetration rate of confinement centers in China's first-tier cities is expected to reach more than 30%.
As a leading enterprise in the domestic confinement service industry, Aidigong has noticed the changes in the industry trend in advance with its keen business sense, and clearly stated in its strategic goal of the 2.0 confinement era that it is necessary to expand the potential customer base through differentiated services, expand the potential customer base by doing differentiated services, and effectively solve the long-term expansion of customer sources in the future.
epilogue
Overall, we can see that Aidigong's leading position in the confinement service industry has been further consolidated. Through the implementation of the 2.0 moon sub-era strategy, the company has not only successfully achieved a turnaround and significantly improved profitability, but also achieved remarkable results in market expansion and brand building. In particular, under the impetus of the "Five Years and Fifty Cities" plan, Aidigong's business coverage has been continuously expanded, and the growth momentum is full, showing the company's clear growth path and strong market competitiveness.
Driven by both policy and market demand, the long-term growth potential of Aidigong is particularly promising. As a leading enterprise in the industry, Aidigong is ushering in unprecedented development opportunities with its differentiated services and deep understanding of market demand.
In this context, Aidigong is still in a positive stage of development, and the value of the enterprise is gradually improving. The market should pay more attention to Aidigong and recognize its leading position in the industry and the emergence of long-term value, as well as its huge potential in the future market. With the in-depth implementation of the company's strategy and the continuous improvement of the market environment, Aidigong is expected to achieve more brilliant achievements in the future.