Event: The company released its 2022 annual report and the first quarter of 2023. ① In 2022, the company achieved revenue of 2,802 billion yuan (+13.82%), net profit of 423 million yuan (+16.6%), and net profit of 386 million yuan (+9.36%) after deducting net profit of non-return to the mother. ② In 22Q4, the company achieved revenue of 817 million yuan (+0.19%), net profit of 161 million yuan (+19.1%), after deducting net profit of non-return mother of 151 million yuan (+46.05%). ③ In 23Q1, the company achieved revenue of 632 million yuan (+22.79%), net profit of 79 million yuan (+44.65%), after deducting net profit of non-return mother of 72 million yuan (+40%).

Profit pressure came under pressure from rising raw material prices in the first half of the year, and profitability was restored quarterly in the second half of the year. In the first half of 2022, the company's gross margins and net interest rates were 22.59%/12.61%, compared to -7.91/-5.14pct. The main reason was that the prices of raw materials such as polymers and fluff pulp rose. Under intense competition in the industry, the company's customers did not raise prices in a timely and drastic manner to transfer cost pressure, putting pressure on profits for the first half of the year. Raw material prices began to decline gradually in 7/8 of '22, and profitability improved in the second half of 2022. 22Q3/22Q4 gross margin was 22.33%/24.75%, -6.14/+5.47pct year on year, net interest rate 14.32%/19.64%, +8/+3.12pct year on year.

The recovery trend continued in 23Q1, with gross margins and net margins of 23.06%/12.56% respectively, +0.89/+1.9pct year-on-year.

Baby hygiene products bucked the trend, while adult hygiene products and other products maintained a high growth rate. In 2022, the company's revenue from baby hygiene products/adult hygiene products/other products was 20.32/6.21/087 million, respectively, +15.52%/+6.15%/+44.49% compared with the same period last year. According to Euromonitor data, the market size of China's baby pants industry in 2022 was 52.8 billion yuan, compared to -9% year on year. The company's baby hygiene products business bucked the trend when the industry declined, mainly due to: ① new customer development; ② fierce competition in the industry and strong competitiveness of the company's products. It is expected to receive orders from some small businesses that have been cleared, and orders from original customers have increased. Revenue from other products grew higher, mainly from composite core and wet wipes products produced by the company.

By region, the company's domestic/overseas revenue in 2022 was 2,479/261 million yuan, respectively, +15.93%/-1.84% year on year.

Profit forecast: As a leading manufacturer in the domestic personal care products field, the company relied on its own technology and product advantages to expand customers, seize market share, and achieve beautiful performance in the unfavorable environment where industry competition intensified and costs were high in the first half of 2022. Looking ahead to 2023, with the company's introduction of new wearable menstrual pants and wearable baby pull-on pants, compounded by a decline in raw material prices, it is expected that the profit side will recover. We adjusted the company's profit forecast. The company's revenue for 2023-2024 is estimated to be 3,370 million yuan and 3.707 billion yuan, +20.2% and +10.0%, respectively. Net profit attributable to the parent company is 523 million yuan and 576 million yuan respectively, +23.7% and +10.1% compared with the previous year. P/E corresponding to the stock price on April 21 is 15.9 and 14.5 times, respectively. Maintain an “increase in holdings” rating.

Risk warning: Competition in the industry is increasing the risk, new product sales fall short of expectations, and the risk of a sharp rise in raw material prices.