Core logic: 1) The adult incontinence products industry is growing strongly. Currently, the domestic penetration rate is only about 6-7%, far below the 50-80% level of developed countries such as Europe and the US. The industry maintains double-digit growth every year, and the category penetration rate is expected to continue to increase; 2) The pattern of the adult incontinence products industry is scattered. The industry's CR5 estimate in 2021 is 16%. Consumers have high product quality requirements and a certain level of brand stickiness. Domestic brands are expected to increase their market share due to outstanding cost performance ratio and detailed channel layout; 3) Reliable stock brands have good brand levels, high school and low brand matrices are good. Market share Leading the industry, the company plans to boost offline channels in 23 years, and traditional offline channels such as KA and distribution have been steadily launched. Independent brands are expected to remain higher than industry growth. On the ODM side, the company strengthened communication with customers at home and abroad, and negotiations with new customers went smoothly, and it is expected that it will contribute to the increase in performance quickly.

Company profile: The company is the leading manufacturer of adult hygiene products, and is driven by its own brand of adult hygiene products+ODM baby hygiene products with two-wheel drive. In terms of independent brands, the company has brands such as “Coco Reliable”, “Absorbent Bao”, and “An Nurse”, which has a leading market share in the industry. In recent years, its own brands have maintained steady double-digit growth, and brand awareness is high. On the ODM side, the business is mainly baby care products, and customers are JS (Philippine brand), Doody (a subsidiary of Hop Seng Yuan) and domestic emerging maternal and child platforms. The partnership with customers is stable. The number of new customers expanded in 23 years is impressive, and overall fundamental improvements are highly certain.

Industry pattern: The adult incontinence products circuit has both short-term catalysis and long-term growth, and the competitive pattern is scattered. Adult hygiene products are currently in the consumer education stage in the early stages of growth. The penetration rate is around 6-7%, far below the 50-80% level of developed countries such as Europe and the US. The compound growth rate of the industry in recent years has been 15-20%, and the industry pattern is scattered. Since consumers still have high requirements for product quality, cost-effective consumption dominates the mainstream, brand repurchase rates are high, and leading manufacturers have stronger cost control capabilities, the industry has an opportunity to create brands with high market share. Looking at the short term, after the epidemic is liberalized, products just need to expand the basic consumer market. On the other hand, product awareness has increased, and the penetration rate is expected to accelerate.

In the medium to long term, the adult hygiene products market has plenty of space, and is expected to reach a market size of more than 100 billion when targeting mature overseas markets.

Company analysis: Dependable Co., Ltd. is the brand with the leading market share in the industry. The company's fundamentals bottomed out in '22, and there is a high degree of certainty that fundamentals will improve in '23. In terms of independent brands, the company's brand market share is leading the industry. In '23, the company plans to boost offline channels, and steadily launch traditional offline channels such as KA and distribution. The growth rate of independent brands is expected to be higher than the industry average. On the ODM side, after the liberalization of immigration, the company strengthened communication with customers at home and abroad. Newly developed customers, including Honey Bud and Babytree, are expected to begin trial production soon and contribute incremental contributions to bridge the 2022 decline gap.

On the cost side, fluff pulp accounts for a high proportion of raw materials. It is expected that with the decline in pulp prices, there is still room for improvement in profitability.

Profit forecast and valuation: The estimated EPS for 2023-2024 will be 0.40 yuan and 0.55 yuan respectively, and the corresponding PE will be 29 times and 21 times respectively. Considering the company's strong brand, the penetration rate of adult hygiene products is expected to increase. It will be given a 30-fold valuation in 2024, corresponding to the target price of 16.5 yuan, covering the “buy” rating for the first time.

Risk warning: the risk of large fluctuations in raw material prices, the risk of increased market competition, the risk that the increase in category penetration rate falls short of expectations, and the risk that channel expansion progress falls short of expectations.