Performance review
1H22 performance is lower than we expected.
The company announced 1H22 results: income 576 million yuan, year-on-year-8.6%; return to the mother net profit 550000 yuan, year-on-year-99.2%, performance lower than we expected, mainly due to the decline in birth rate affecting the decline in income from baby care products, while wood pulp, polymer and other raw materials prices, rising logistics costs erode profits; deducting a non-homing net loss of 2.82 million yuan (1H21 is a profit of 65 million yuan). In a single quarter, the company's 1Q/2Q22 achieved income of 322 million yuan,-3.3% /-14.5% respectively, and net profit of 1.96 million yuan / loss of 1.4 million yuan, respectively, compared with the same period last year.
Trend of development
1. Baby care products are a drag on income, while rising raw material costs and freight costs erode gross profits. 1H22's gross profit margin is from-11.9ppt to 12.2% compared with the same period last year, mainly affected by the rising cost of raw materials such as wood pulp, polymer, composite core and logistics costs. Sub-business, ① baby care products: 1H22 income 271 million yuan, year-on-year-23.4%, mainly due to the decline in the domestic birth rate, and the company's main customers positioning of high-end baby diapers demand dropped significantly, dragging down the company's revenue performance; gross profit margin 9.7%, year-on-year-11.0ppt ② adult incontinence products: 1H22 income 249 million yuan, year-on-year + 11.2%, the company continues to develop and innovate to launch differentiated products, its own brand to achieve counter-trend growth, while offline channel expansion has achieved preliminary results, we expect the company's offline revenue to grow by nearly 30% year-on-year; gross profit margin 14.3%, year-on-year-13.9ppt ③ pet hygiene products: 1H22 income 44 million yuan, year-on-year + 9.7%, basically in a break-even state, mainly due to the rising cost of raw materials, the company and customers there is a certain lag in price adjustment.
2. Increase investment in brand promotion and research and development, and put pressure on profitability. The 1H22 expense rate is 12.0%, year-on-year + 0.3ppt, of which, the sales expense rate is from + 2.7ppt to 8.6%, mainly due to the company's efforts to promote the brand and open up offline sales channels; the management expense rate is from + 0.9ppt to 2.7% compared with the same period last year, mainly due to the increase in employee salary adjustment and land amortization expenses; the R & D expense rate is from + 0.6ppt to 4.4% compared with the same period last year, which is mainly due to the company's increased investment in R & D. Benefiting from increased exchange gains and losses and interest income, the financial expense rate was-3.9ppt to-3.7 per cent year-on-year. Under the comprehensive influence, 1H22 achieved a net profit of 550000 yuan.
3, increase R & D innovation, brand building and channel layout, internal and external repair waiting for flowers to bloom. The company adheres to the "independent brand + ODM" two-wheel drive model, but the focus of development continues to shift to adult incontinence products. In terms of ODM business, the company plans to continue to open up new customers and maintain steady development. In terms of independent brands, under the background of periodic pressure on downstream consumption, the company strengthens research and development, while increasing brand construction and offline special canal layout, we believe that it is expected to continue to lead the incontinence market education and enable medium-and long-term growth.
Profit forecast and valuation
As the epidemic has repeatedly led to periodic pressure on downstream consumer demand, and the price of raw materials is still high, we cut the 2023 net profit by 52% to 64 million yuan / 154 million yuan. The current share price corresponds to a 2022 Universe 50 times / 21 times earnings ratio in 2023, maintaining an outperforming industry rating. The valuation switch to 2023, based on the profit forecast, and considering that the company's adult incontinence brand is growing well, and is expected to consolidate its leading position by virtue of its advantages in products, research and development, channels, etc., we cut our target price by 21% to 14.00 yuan. corresponding to 25 times 2023 price-to-earnings ratio, there is 20% upward space compared with the current stock price.
Risk.
Raw material price fluctuation risk; industry competition aggravates the risk; policy promotion is not as expected.
