Main points of investment

Event: the company announced that the total amount of funds to be raised by issuing convertible bonds would not exceed 330 million yuan. After deducting the issuing expenses, 150 million yuan was invested in the intelligent production and supply chain management construction project of women's and children's washing and care products, and 180 million yuan was used in the intelligent production and supply chain management construction project of baby underwear.

Consolidate the advantages of the main products and create a new growth point of maternal and infant washing and care performance. As one of the leading brands of mother and child in China, the company has three major brands and differential positioning, among which the advantage of rabbi brand is the most prominent, with marketing channels covering 30 provinces and more than 1300 offline outlets. Online business covers Tmall, JD.com, Vipshop Holdings Limited and other large e-commerce platforms. 1) the infant clothing and cotton business (including women's and children's underwear) accounts for about 80% of the company's overall sales income, is the company's main source of income, and enjoys a high reputation in the domestic mother and child consumer market. After the completion of the intelligent production and supply chain management project of baby underwear, it will significantly improve the production capacity and intelligent production level of infant clothing, strengthen inventory management, improve product turnover and product profitability, and further consolidate the dominant position of the company's products. it is estimated that the annual revenue will be 250 million yuan and the net profit will be more than 37 million yuan. 2) Maternal and infant washing and care products currently account for only about 6% of the company's revenue, and the construction of intelligent production and supply chain management of maternal and child care products will help the company to broaden its product line and upgrade the original technology, equipment and products. Help to improve product production efficiency, expand production capacity, enhance product competitiveness. The washing and care products under this project will be more high-end than the previous product positioning, help to form joint sales with the "rabbi" brand, and raise the unit price of sku and customers in the store. It is estimated that the annual income of the project will be 210 million yuan and the net profit will be 50.62 million yuan after reaching production. The joint construction of the company's dual-category projects is expected to create a new growth point of performance in the future, which will help to form a new dual-engine-driven pattern of infant clothing and cotton products and maternal and infant care products.

Enjoy the two-child policy + consumption upgrade dividend, the domestic maternal and infant market has broad growth space. Benefiting from the liberalization of the two-child policy, more than 45 percent of the 17.86 million people born in 2016 came from the second child or more. In the first five months of 2017, the number of people born nationwide was 7.407 million, with more than half of the second child. The increase in the number of births is conducive to the improvement of the total infant consumer goods market. At present, the post-80s and post-90s have become the main force of mother and child consumption. under the background of consumption upgrading, product brand and quality have become the focus of consumers' attention, encouraging enterprises to upgrade their products. it is good for the domestic superior brands represented by the rabbi to further enhance their market share.

Profit forecast and investment advice: it is estimated that the EPS from 2017 to 2019 will be 0.42,0.50,0.63 yuan respectively. Considering that the company will directly benefit from the high growth of the mother and child industry, the effect on the marketing network layout and operation adjustment has gradually appeared, and the "overweight" rating has been maintained.

Risk hint: the risk that sales growth is less than expected; the risk that the extension layout is lower than expected.