3Q22 performance is lower than we expected.
Reliable shares announced 1-3Q22 performance: income 849 million yuan, year-on-year-2.0%; return to the mother net profit of 15 million yuan,-78.7% year-on-year. From a quarterly point of view, the company's 1Q/2Q/3Q22 realized income of RMB 2.22 billion, 14.5% and 15.5% respectively, and net profit of 1.96 million yuan / loss of 1.4 million yuan / 14.22 million yuan, respectively. The performance of 3Q22 was lower than we expected, mainly because the cost of raw materials was still high and the progress of price increase was lower than expected.
Trend of development
1. The growth rate of 3Q22 revenue became positive compared with the same period last year. 3Q22 achieved 273 million yuan in revenue, an increase of 15.5% over the same period last year, with a month-on-month growth rate. In terms of products, ① baby care products: we expect export to be relatively stable, and new domestic customers will contribute income one after another to make up for the decline in orders from original major customers. We expect the decline in 3Q baby care products to narrow month on month. ② adult incontinence products: the company continues to promote independent brand marketing upgrading, strengthen market education, occupy consumers' psychological share, at the same time, the expansion of offline express channels is promoted in an orderly manner, we expect to drive the steady growth of adult incontinence products income.
2. The cost of raw materials affects the performance. 3Q22's gross profit margin is 12.9%, year-on-year-6.3ppt, mainly affected by the rising cost of wood pulp, polymers and other raw materials. The year-on-year expense rate is from-10.6ppt to 8.3%, of which the sales expense rate is from-3.3pt to 7.6%. We expect it to be mainly affected by the epidemic and the change in the pace of the company's marketing delivery; the management expense rate is from-3.3ppt to 2.6% year-on-year, mainly because the company optimizes internal management and streamlines expenses; the R & D expenditure rate is from-0.5ppt to 4.7%, still maintaining a high level of R & D investment. Financial expense rate year-on-year-3.5ppt to 6.6%, mainly due to an increase in exchange earnings and interest income. Under the comprehensive influence, the net interest rate of the company is 5.2%, which is + 4.3ppt compared with the same period last year.
3. The brand construction of adult incontinence products and the expansion of special channels continue to advance, and pay attention to the changes in the price of raw materials. In terms of brand, under the background of periodic pressure on downstream consumption, the company continues to invest in brand building and launch the IP image of "reliable and dynamic elderly" to reshape brand positioning and enhance brand awareness. In terms of channels, the company increases the expansion of offline special channels, and we believe that it is expected to broaden the consumer group and strengthen market education at the same time. In terms of products, the company has successively launched new products such as ultra-thin breathable adult diapers, light contraband for men, and "self-made" series of female peace of mind pants, constantly enriching the product matrix, we believe that the middle and high-end products are expected to drive income growth at the same time, drive up gross profit margin. Follow up to pay attention to the progress of brand building and special canal development, as well as changes in the price of raw materials.
Profit forecast and valuation
Considering that the price of raw materials is still high, we reduce the net profit of 2022 Universe by 40% to 38 million yuan / 127 million yuan in 2023. The current share price corresponds to a price-to-earnings ratio of 22 times 2023. Maintain an industry rating that outperforms.
Due to the lower profit forecast, but considering that the company's own brand of adult incontinence products is developing well, and is expected to consolidate its leading position through the expansion of offline special channels, we cut our target price by 11% to 12.40 yuan, corresponding to 27 times 2023 price-to-earnings ratio. There is 18% upside compared to the current stock price.
Risk
Raw material price fluctuation risk; industry competition aggravates the risk; policy promotion is not as expected.
