Steady income growth and high raw material prices put pressure on gross margins. 2022H1's operating income was HK $2.883 billion, an increase of 22.4% over the same period last year, and its gross profit was HK $1.53 billion, an increase of 21.4% over the same period last year. The gross profit margin is 53.0%, which is relatively stable compared with the gross profit margin of 53.5% in the same period last year, but a sharp decline compared with the same period in 2020. Mainly because from last year to the first half of this year, the price of palm oil and LDPE (low density polyethylene), the raw material used for the company's main products, has always been high, and the gross profit margin is under pressure; oil prices have fallen since June this year, and the company's cost pressure is expected to ease in the second half of the year, and gross profit margin is expected to rise slightly.
It is dragged down by exchange losses and results are at a loss. 2022H1 lost HK $149 million in net profit, compared with a loss of HK $44 million in the same period last year. The performance loss was mainly caused by the exchange loss caused by the depreciation of the company's offshore RMB bank deposits against the US dollar and had nothing to do with the main business, with a net exchange loss of HK $142.2.
During the period of channel reform, the investment increased, and the rate of sales expenses increased. The 2022H1 sales expense rate is from + 1.1pp to 39.8% compared with the same period last year. The increase in the sales expense rate is mainly due to the increase in sales staff caused by the sinking of accelerated channel development, as well as the year-on-year increase in offline channel marketing expenses; the management expense rate is year-on-year-1.6pp to 14.2%. Operating profit margin is-8.1%, year-on-year-4.1ppp; net interest rate-5.2%, year-on-year-3.3pp.
Split by product, the income of clothing cleaning care is growing fast and new products sell well. The income of 2021FY clothing, personal and household cleaning care was HK $24.5 million, which was HK $2.0 million, which was + 25.2%, 6.6% and 11.6% respectively compared with the same period last year.
The series of sports products launched by the clothing care business this year, as well as underwear detergent and sterilization products launched last year, are growing rapidly, leading to an increase in overall income; at the same time, a higher gross profit margin has led to an increase in overall profits. In the first half of the year, the revenue of new products reached 7% from January to June, and the proportion for the whole year is expected to further increase to 10%.
Split by channel, thanks to the rapid growth of offline channels under the channel sinking strategy. The revenue of online sales, direct sales to major customers and distributor channels was HK $1.08 billion respectively, which was 98.5% higher than that of the same period last year. The rapid growth of offline channels is based on the channel reform plan to sink the market and increase the regional coverage of dealers by increasing the layout of blank districts and counties. The number of new stores in third-to fifth-tier cities increased by 74.4% over the same period last year. Online O2O platform and emerging e-commerce platform are developing rapidly.
JD.com home and Meituan flash purchase market share first; JD.com platform sales + 400% compared with the same period last year.
Risk tips: the expansion of channels is not as expected; the epidemic repeatedly affects demand; and the price of raw materials has risen sharply.
Investment advice: downgrade earnings forecasts and maintain a "buy" rating. We are optimistic about the speed of channel expansion of the company, and the introduction of new products that are more in line with consumer demand will lead to rapid income growth and increase income growth; at the same time, due to the high raw material prices in the first half of the year, high cost pressure, and large foreign exchange losses, we downgrade our profit forecast and expect the 2022-2024 net profit to be 8.611.3 billion Hong Kong dollars (1.35 billion Hong Kong dollars), a year-on-year growth rate of-15.1%, 31.0%, 20.0%. EPS is HK $0.15, 0.19 and HK $0.23. We maintain "buy".
The rating and a reasonable valuation range of HK $6.0 to HK $7.20 correspond to a reasonable valuation of 31 to 37x PE in 2023.