The 2022 results fell short of our expectations
The company announced its 2022 results: revenue of HK$7.947 million, +4.6% year on year. Excluding the impact of foreign exchange fluctuations, RMB calibrated revenue was +7.7% year on year; net profit of HK$611 million, -9.7% year on year, was lower than our expectations. It was mainly affected by rising raw material prices and 1H22 exchange losses. If exchange losses (HK$156 million) were excluded, adjusted net profit was approximately HK$767 million. On a semi-annual basis, 1H/2H22's revenue was +22.4%/-3.4% year-on-year, and the growth rate declined somewhat from 1H22, partly due to repeated effects of the epidemic; 2H22's net profit was HK$760 million, turning a loss into a profit over 1H22. Looking ahead, as high raw material prices fall, the influence of foreign exchange weakens, and business changes steadily advance, we think the company is expected to usher in a gradual improvement in fundamentals.
Development trends
Dealer channel revenue was +20% year-on-year in 2012, and new products performed well. ① Looking at each channel: dealer channel revenue +20% year on year, continuing the rapid growth trend since the second half of 2021, preliminary confirmation that the company's offline operation capacity continued to strengthen; KA channel was under pressure, with revenue falling 12.7% year on year, partly affected by the repeated impact of the epidemic; online revenue fell 1.3% year on year. We think it was mainly affected by the decline in traffic from traditional e-commerce platforms such as Tmall. The company actively expanded live e-commerce such as Douyin and Kuaishou, continuously optimized product portfolio and marketing strategies, and continued to strengthen online multi-platform operation capabilities; ② by category: clothing in 2022 The revenue of the cleaning business was +5.7% year on year, and the performance of new products such as underwear and laundry detergent was good, driving steady growth in the laundry cleaning business; personal care revenue achieved a steady increase of +2.9% year on year; household cleaning business revenue was -6.1% year on year. If foreign exchange influence is excluded, household cleaning business revenue was basically the same year over year.
2. The decline in high raw material prices led to a month-on-month improvement in the profitability of 2H22. The company's gross margin in 2022 was -0.6ppt to 57.8% year-on-year, of which 2H22 gross margin was restored to 60.6%, mainly due to the continued decline in raw material prices such as palm oil in the second half of '22. According to Wind, palm oil prices have dropped by more than 50% since June '22. On the cost side, the sales expense ratio in 2022 was +1.9ppt to 33.4% year on year, mainly due to the increase in employee costs due to the expansion of sales staff; the management expenses ratio was +1.1ppt to 14.0% year on year; under the combined influence, the company's net profit margin in 2022 was -5.7ppt to 7.7% year-on-year. If the impact of foreign exchange losses of about HK$150 million was excluded, the adjusted net profit margin was about 9.7%.
3. The management transformation is beginning to bear fruit. Focus on the development of new products and the decline in channels. ① Channel decline: The company continues to deepen dealer channel reform, optimize dealer inventory management, terminal sales management, etc., strengthen offline refined operation and management capabilities and improve distribution network construction; ② New product expansion: The company introduces new segmented and functional products through continuous R&D and innovation, continuously consolidating its leading position in clothing cleaning, while actively expanding fields such as personal care and home cleaning to open up space for market segmentation. We expect that new products are expected to further contribute to increased performance as scenarios such as outings and sports are repaired after the epidemic.
Profit forecasting and valuation
Taking into account the impact of increased competition in the industry, the 2023 profit forecast was lowered by 8% to HK$0.19, and a profit of HK$0.22 per share in '24 was introduced. The current stock price corresponds to a price-earnings ratio of 25 times 2023. Maintaining an outperforming industry rating, the target price was lowered by 8% to HK$6.0 due to profit forecast adjustments. Corresponding to a price-earnings ratio of 32 times in 2023, there is room for 26% increase from the current stock price.
risks
Industry competition intensifies; raw material prices fluctuate; poor promotion of new products; product quality problems.