Incident: The company released its 2022 performance report. The announcement showed that in 2022, the company achieved total operating revenue of HK$7.947 billion, an increase of 4.6% over the previous year, and achieved net profit of HK$611 million, a year-on-year decrease of 39.7%, and adjusted net profit (excluding exchange gains and losses) of $767 million, a year-on-year decrease of 19.2%.
New categories maintain a high upward trend, optimize the company's product portfolio, and drive ASP improvement. By product, the company achieved revenue of HK$68.2/62/50,000,000 for clothes/personal cleaning/household cleaning in '22, respectively, with year-on-year changes of +5.7%/+2.9%/-6.1%, respectively. The company continues to develop new products in various fields in response to consumer demand. Following the launch of a special laundry detergent for underwear in '21, followed by a disinfectant and deodorizing laundry detergent, the laundry detergent for sports enthusiasts was introduced in '22, and the personal cleaning strip launched a foam antibacterial hand sanitizer in '22 to upgrade product formulations and packaging. During the reporting period, new products launched by the company in '21 generated about 6.6% of revenue. Among them, laundry detergent for underwear increased 65% year on year, and further optimized product mix, driving the company's overall ASP increase of about 5% year on year. Looking ahead to 23 years, on the one hand, the optimization of epidemic prevention and control has effectively boosted consumers' travel, which in turn has stimulated consumers' demand for cleaning in various areas such as clothing, personal, and home. On the other hand, the company is expected to further increase the revenue share of new products to around 10%, further increasing the company's ASP and gross margin levels.
Offline channel reforms continue to be deepened, and dealers have achieved high-quality expansion. The company continues to deepen channel reforms to cope with consumers' rapidly changing purchasing habits. The group strives to establish perfect channels to reach consumers to the greatest extent possible and provide a real guarantee for sales growth. The proportion of online/offline revenue in '22 was 47%/53% respectively. By channel, the company's online/offline distribution/KA achieved revenue of 37.6/32.5/940 million yuan respectively in '22, compared with -1.3%/+19.7%/-12.7%, respectively. Online channels have been affected by the diversion of traditional e-commerce platforms, and companies are also actively making adjustments and making efforts to set up channels to shake things up. In offline distribution channels, the company's reforms have shown results and achieved rapid growth. The number of dealers increased from around 1,400 in '21 to around 1,700, and the number of stores nationwide increased by 27%. At the same time, the company carried out reforms targeting districts and counties, completed the national O2O strategic layout, and worked with dealers to help new and old businesses sink and penetrate channels.
KA channel companies actively controlled risk and shrunk channels with higher risk of repayment, leading to a decline in revenue in '22.
The pressure on raw materials is relieved, and the cost rate is expected to be optimized. Prices of the company's main raw materials, palm oil and LDPE, fluctuated significantly in '22. The company relied on supply chain capacity and ASP to hedge against the pressure on raw material costs. The gross margin fell by less than 1pct to 57.8%. With the fall in the prices of the two major raw materials in '22, raw material costs are expected to decline markedly throughout '23, driving the company's gross margin recovery. Due to reasons such as epidemic control, the company's expense investment efficiency is low. Combined with the effects of exchange gains and losses, etc., the company's net interest rate returned to the parent dropped by 6 pcts to 7.69% in '22. The improvements in the above factors are all expected to drive the company's profit margin to rise in '23.
Profit forecast and investment advice: We expect the company to achieve net profit of HK$11.77/1374/1,559 million in 23-25, a year-on-year change of 92%/17%/13%. The stock price on March 29 corresponding to 23-24 PE was 24X/21X, maintaining the “Highly Recommended” investment rating.
Risk warning: risk of the epidemic, risk of large fluctuations in raw material prices, risk of channel reform falling short of expectations, risk of exchange rate fluctuations.