Event

In the first half of 2022, the company realized operating income of 576 million yuan, down 8.59 percent from the same period last year; realized net profit attributable to the parent company of 6 million yuan, down 99.18 percent from the same period last year; realized deduction of non-net profit from the parent company-28 million yuan, a decrease of 104.36 percent over the same period last year; and net operating cash flow was-34 million yuan, a decrease of 119.03 percent over the same period last year.

The macro fertility rate is declining, and 2022H1 revenue is greatly affected by the fluctuation of infant care products business, so it is optimistic about the development of adult incontinence business for a long time.

The company is a leading domestic high-tech enterprise specializing in disposable sanitary products, the main products include adult incontinence products, baby care products and pet sanitary products, belonging to the disposable sanitary products industry. In the first half of 2022, the company realized operating income of 576 million yuan, a decrease of 8.59% compared with the same period last year. The main reason is that the business income of baby care products decreased by 23.37% compared with the same period last year, and the product structure changed. In the first half of 2022, the international situation was complex and changeable, the domestic epidemic situation was distributed at many points, and the economic development was under multiple pressures. affected by the epidemic situation and heavy economic burden and other factors, the fertility level continued to decline, and the market demand for newborn products decreased. At the same time, at this stage, the fluctuation of the epidemic occurs more in the regional scope, and the sales of masks also decline, which also has a certain impact on the company's revenue. Compared with the above two businesses, the revenue of adult incontinence products and pet hygiene products increased in different degrees, which offset the loss of narrowing the scale of baby care products to a certain extent, among which the company's main adult incontinence products business increased by 25 million yuan (YOY11.17%) compared with the same period last year.

From a quarterly point of view, the company is greatly affected by fluctuations in the business of baby care products.

Among them, operating income fell 14.47% in the second quarter, more than 3.34% in the first quarter. Combined with the company's 2020 and 2021 sales data, winter is the peak season for the company's products (hot summer will reduce product use to a certain extent), while the consumption festival at the beginning of the year will boost revenue in the first quarter. On this basis, due to the adverse factors of the decline in fertility, the operating income performance in the second quarter dropped sharply compared with the same period last year, and the performance in the first quarter decreased slightly compared with the same period last year.

The gross profit margin of sales in the first half of 2022 was 12.18pct, which decreased significantly by 11.87% compared with the same period last year, and the expense rate increased slightly by 0.32pct during the period.

The company achieved a sales gross profit margin of 12.18% in the first half of 2022, a sharp drop from the same period last year. The company's product material costs rose in the first half of the year, while logistics expenses rose, resulting in a sharp rise in operating costs, up 5.69% over the same period last year, and narrowing revenue in the same period, resulting in a sharp drop in gross profit margin. At the same time, the ODM business is characterized by low gross margin, and the company will appropriately reduce the gross margin in order to promote its own brand (such as adult incontinence products). On the other hand, sales in the mask business, which enjoys the highest gross margin, have fallen sharply, resulting in a structural change in gross margin.

The company's expense rate increased slightly by 0.32 percentage points during the first half of 2022 compared with the same period last year. The rate of financial expenses in the period decreased significantly, accounting for 3.89% of sales revenue compared with the same period last year. This is mainly due to the decrease in interest income (from-3.0223 million yuan to-12.0081 million yuan in the same period last year) and exchange gain and loss income (from 2.8491 million yuan to-9.8848 million yuan in the same period last year). The slight increase in management expenses during the period is mainly due to wage adjustment (from 4.0213 million yuan to 5.5476 million yuan in the same period last year) and increased land amortization (from 3.9418 million yuan to 4.6187 million yuan in the same period last year). Compared with the same period last year, sales expenses increased slightly, accounting for 2.73% of sales revenue, and the absolute value of changes in various expenses was the largest, mainly due to the company's increased efforts in brand promotion and channel development during the reporting period. among them, the marketing promotion fee was raised to 34.3135 million yuan from 26.1212 million yuan in the same period last year. At the same time, the company continues to increase its R & D investment, which is mainly reflected in the increase in direct investment and employee compensation.

Wisely select ODM high-quality customers + independent brand dual-drive model, continue to increase R & D efforts to enhance brand competitiveness the company ploughs its own brand + ODM two-wheel drive strategy, always adhere to product innovation and process innovation as the core driving force of enterprise development, while promoting its own brand business, the company also increases R & D investment and actively builds ODM sales channels. In the field of disposable sanitary products, the company diversifies its business layout to cope with industry changes and demographic changes calmly. In the field of ODM, the company's business is mainly baby series products and pet series products. Committed to providing a full range of services for brand customers, on the basis of in-depth understanding of industry development trends and customer needs, pay attention to strategic win-win with customers. Over the years, through the continuous optimization of product solutions, the company has established a good reputation in the industry and maintained a number of stable and high-quality ODM customers, making the company has a strong customer advantage in the industry.

At present, with years of scientific research advantages and accumulated industry experience, the company has become one of the leaders in standardization in the industry and one of the leading brands in baby diaper solutions. At present, the company has a total of 271 patents, including 51 invention patents, outstanding R & D capabilities. In 2022, "the development of sodium polyacrylate super absorbent resin with low residual monomer and its application in Eisai" passed the acceptance of the Science and Technology Department of Zhejiang Province. the implementation of this project can lead the development of low-residue and high-absorption sodium polyacrylate in the province or national high-performance medical and health materials industry, and promote the development of medical sanitary materials industry in our province. It is of great significance to the improvement of hygiene and functionality of medical and health materials such as diapers, as well as the sustainable development of the industry.

Taking advantage of the policy wind, building brands, expanding products, strict quality supervision, building company competition barriers affected by national policies, adult incontinence products market has great potential for development. The form of population aging in China is grim, and the outline of the 14th five-year Plan proposes to implement the national strategy to actively deal with population aging. In July this year, with the consent of the State Council, 11 departments, including the National Health Commission, jointly issued the guidance on further promoting the Development of the combination of Medicine and Care, further promoting the optimization of the supply of health and pension services for the elderly, and providing a basis for the development of the market for adult incontinence products. At the same time, with the gradual improvement of fertility-related policies and supporting measures, as well as the gradual renewal of the consumption concept of baby diapers, the domestic baby diaper market still has a lot of room for development in the future. As a brand that has been deeply cultivated in the disposable products industry for more than 20 years, it has reliably established a good brand image in the market, and at the same time, the company has strengthened its product marketing and channel layout, with the help of direct retail (pharmacies, pension institutions, hospitals) cooperation and online channels, further strengthen the customer base and enhance customer stickiness. In terms of quality supervision, the company has always pursued product quality, and has formed its own advantages in production efficiency, cost control, supply efficiency and so on. The company has passed ISO international quality management system certification, established a total quality control system covering procurement, production, warehousing, transportation and other links, and carried out quality inspection and production management in strict accordance with relevant standards in procurement, production and warehousing activities. Therefore, no matter from the macro point of view of population aging, long-term care policy-driven, consumption upgrading of the industry and diversified demand expansion of products, or from the perspective of the quality management system covered by the company in all aspects, reliable shares can deepen the company's competitive barriers and consolidate the leading position of adult incontinence.

Investment suggestion

The company adopts the development model of "ODM+ independent brand" and is engaged in the business of disposable sanitary products, the main products include infant care products, adult incontinence products and pet hygiene products and masks, among which infant hygiene products and adult incontinence products account for the highest proportion, and adult incontinence products gradually become the leading business of the company. From the product point of view, the company provides safe, comfortable and high-quality personal health care products for consumers of all ages, and the steady development of self-operated adult incontinence products, it will become the main driving force for the company's revenue growth and profitability in the future. From the perspective of channels, the company implements the development strategy of "direct retail expansion and e-commerce construction", optimizes dealers' channels offline, innovatively introduces the construction of direct retail channels, and preemptively occupies the dividends of direct retail channels. On the other hand, as one of the earliest companies to enter the e-commerce channel in the field of adult incontinence, the company actively improves the construction of online e-commerce channel and builds a "reliable well-being" one-stop pension procurement platform to further deepen the company's voice and brand influence in the old-age care industry. To sum up, we predict that in 2024, the company will achieve revenue of 1.337 billion yuan and net profit of 0.58 million yuan, respectively, with net profit of 1.38 billion yuan for PS, 1.94 times for EPS and 0.51 yuan per share for PE, respectively, maintaining the "recommended rating".

Risk hint

The risk that the conversion of consumer health awareness and consumption habits is less than expected; the direct retail channel is not as expected; the revenue of major customers is not as expected; the risk of raw material price fluctuations.