1H22 performance is basically in line with the previous performance forecast.
The company announced 1H22 results: income of HK $2.883 billion, + 22.4% compared with the same period last year; net loss of HK $149 million, corresponding to a loss of HK $2.65 per share, which was basically in line with previous performance forecasts, and the extent of loss was larger than that of the same period last year, mainly affected by exchange losses and rising prices of raw materials.
Trend of development
1. The dealer channel is growing rapidly, driving 1H22 revenue to + 22.4% compared with the same period last year. Although shipments in some areas were affected by repeated outbreaks in the first half of the year, the company achieved rapid revenue growth through active supply chain management. ① category: revenue of 1H22 clothing cleaning care business is + 25.2% compared with the same period last year, of which new products such as underwear detergent are released rapidly, and the total revenue of new products in the first half of the year accounts for about 7%; personal care / home cleaning business grows steadily, revenue is + 6.6% and 11.6% respectively compared with the same period last year. From the perspective of ② channels: dealer channels + 98.5% year on year, continuing the strong growth trend since the second half of 2021, channel optimization has achieved initial results, and operation capacity has continued to improve; KA channels year-on-year + 91.0%, partly due to the increment brought by new retail platforms such as O2O. Online channels are under pressure,-10% compared with the same period last year, mainly due to the company's initiative to close retail channels, new channels, the company continues to expand live e-commerce and other new platforms, we believe that the follow-up is expected to further consolidate the online leading position.
2. The high price of raw materials and the loss of exchange are a drag on profitability. 1H22's gross profit margin was under pressure, falling 0.4ppt to 53.0% year-on-year, mainly due to a sharp rise in raw material prices in the first half of the year. Since the beginning of June, palm oil and LDPE prices have fallen, and we believe that the high decline in raw material prices is expected to ease cost pressure and release profit elasticity. On the expense side, 1H22's sales expense rate rose 0.9ppt to 39.8% compared with the same period last year, mainly due to the expansion of sales staff and offline marketing expenses; the management expense rate decreased to 17.4% year-on-year, partly due to the economies of scale brought about by rapid revenue growth; on the profit side, the company's offshore RMB depreciated against the US dollar in the first half of the year, resulting in a net exchange loss of about HK $140 million, dragging down 1H22 net profit. We believe that the impact of foreign exchange losses is not caused by the main business operations, and the company has converted most of the offshore RMB into US dollars in May to reduce the possible impact of future foreign exchange fluctuations.
3. The optimization of channels and the expansion of new products have been promoted in both directions, and the management reform has achieved initial results. ① channel construction: since the second half of 2021, the company has continuously deepened the channel reform, through the classified management and digital empowerment of dealers, to enhance the fine operation ability of the channel and accelerate the expansion of the terminal coverage of the sinking market. ② new product development: the company continuously improves the product matrix layout through functionalization and differentiation of new products, and successively introduces men's underwear detergent, sports detergent and other new products this year. The market feedback is good, which confirms the company's product strength and brand reputation in the field of clothing cleaning. At the same time, the company is also actively expanding the category of personal care and home cleaning products. We believe that the follow-up company is expected to open the growth space of the subdivision track.
Profit forecast and valuation
Keep profit forecasts for 2022 and 2023 unchanged. The current share price corresponds to a price-to-earnings ratio of 32x / 28x in 2023. Maintain an outperform industry rating and a target price of HK $6.50, corresponding to 36 times 2022 earnings and 31 times 2023 earnings, with 12.5% upside compared to current share prices.
Risk.
Intensified competition in the industry; fluctuation of raw material prices; weak promotion of new products; product quality problems.