Event: when the company released the 2022H1 performance report, 2022H1 achieved an income of HK $2.88 billion, an increase of 22.4%, and a loss of HK $149 million, which was larger than the loss of 2021H1, mainly due to the depreciation of RMB against the US dollar affecting the company's exchange gains and losses, rising raw material costs and other factors. The company's performance is in line with previous performance forecasts.
Comments:
The category of clothing cleaning has grown steadily, and the reform of offline channels has achieved substantial growth. From the point of view of products: 1) the income of 22H1 clothing cleaning category reached HK $2.45 billion, an increase of 25.1%. The company continues to expand and upgrade product categories, introducing sports detergent, underwear professional detergent, sterilization and flavor detergent, etc., to consolidate the status of categories and promote income growth; 2) 22H1 personal cleaning category realized income of HK $230 million, an increase of 6.5% 3) the 22H1 household cleaning category achieved income of HK $200 million, an increase of 11.7%, and clothing cleaning became the engine of income growth. From a sub-channel point of view: 1) 22H1 online channels achieved revenue of HK $1.48 billion, a drop of 10.0%. The company's products ranked first among many online platforms, maintaining its advantage. 2) the offline revenue of 22H1 reached 1.41 billion Hong Kong dollars, an increase of more than 90%. The company strengthened the classified management with distributors, improved the coverage of the distribution network and the product delivery rate, and at the same time strengthened the cooperation among large direct sales customers. Offline continued to grow rapidly under the impact of the epidemic, and channel reform was effective.
Due to the rise in the price of raw materials and other factors, gross profit margin is under pressure, and foreign exchange gains and losses are a drag on profits. The company's 22H1 gross profit margin was 53.0%, down from the same period last year. The proportion of raw material costs and inventory changes increased 1.5pct to 41.7%, which became the main drag on gross profit margin. The company's 22H1 sales expense rate increased 1.1pct to 39.8% compared with the same period last year, mainly due to the increase in personnel costs and offline promotion expenses. The management expense rate decreased from 1.6pct to 17.4%, mainly due to good cost control. The financial expense rate fell by 0.5pct to 0.3%, mainly due to an increase in interest income. In addition, the exchange loss of the company's offshore RMB bank deposits against the US dollar was HK $142 million, affecting the company's performance, while the integrated company 22H1 lost HK $149 million.
High raw material prices, positive price strategy and other factors are expected to lead to recovery in the second half of the year.
We believe that the company's profit will improve in the second half of the year: 1) the price of raw materials will continue to be high from the high level of 21H2, and the price of palm oil will fall significantly in June 22, and the gross profit margin is expected to improve in the second half of the year; 2) the company will increase the price of best-selling old products in the second half of the year and control discounts to improve gross profit margin.
Profit forecast and investment rating: the company actively promotes the sinking of channels, the expansion of online emerging platforms, and the continuous promotion of new products is expected to lead to steady revenue growth, while measures such as falling raw material prices and price increases lead to improvement at the profit end, which is expected to usher in the dawn. We estimate that the company's 2022-2024 revenue will be HK $10.19 billion, net profit of HK $10.47, 14.38 / 1.815 billion, and EPS of HK $0.18, respectively. The current share price is 32 times, 23 times and 18 times PE, taking into account the improvement of raw material cost pressure, channel adjustment and product innovation to promote steady growth, and maintain a "buy" rating.
Risk factors: offline channel adjustment does not meet expectations; new product promotion does not meet expectations; rising raw material costs affect the level of net interest rate, etc.