Incidents:

Haoyue Nursing released its 2022 Annual Report and 2023 Quarterly Report:

In 2022, the company achieved operating income of 2,802 million yuan/+13.82% year on year, net profit of 423 million yuan/+16.60% year on year, net profit of 386 million yuan/+9.36% year on year; of these, 202Q4 achieved operating income of 817 million yuan/+0.19% year on year; net profit of 161 million yuan/+19.10% year on year after deduction of Fumo's net profit of 151 million yuan/+46.05% year on year.

2023Q1 achieved operating income of 623 million yuan/+22.79% year on year, net profit of 79 million yuan/+44.65% year on year, after deduction of net profit of 72 million yuan/+40.00% year on year.

Key points of investment:

Baby products performed steadily, and other products grew brilliantly. In 2022, the revenue of the company's baby hygiene products/adult hygiene products/other products was 20.32/6.21/87 million yuan respectively, +15.52%/+6.15%/+44.49%, respectively. Thanks to the good sales performance of old customers and the orderly development of new customers, the company's baby hygiene products continued to develop steadily. The growth rate of other products is high, mainly driven by increased revenue from composite core and wet wipes products. In the future, the company's new products that are easy to put on and take off and new ultra-breathable material products will be put on the market, and new production capacity will be launched one after another, which is expected to contribute an increase to subsequent revenue.

Overseas business is expected to expand. In 2022, the company's domestic business revenue was 2,479 million yuan/+15.93% year on year, and overseas business revenue was 261 million yuan/-1.84% year on year. The new plant in Thailand has been put into operation, and the independent brand Sunnybaby has entered major supermarkets in Thailand. With the end of the boom period for factories in Thailand, the development of marketing activities, and the popularization of consumer education for composite core diapers, overseas business is expected to expand.

Cost pressure has been released, and gross margin has entered an improvement range. The company's gross margin in 2022 was 23.15%, -3.17 pct compared to the previous year. The main reason was that the cost of major raw materials for companies such as polymers and rubber bands rose sharply due to the influence of the international crude oil market. The gross margin of 2022Q4 was 24.75%, +5.47 pct compared to the previous year. 2022H2 international oil prices began to fall, relieving the company's cost pressure.

The gross profit margin of 2023Q1 company was 23.06%, +0.89 pct compared to the previous year, continuing the improvement trend.

Expense rates were stable throughout 2022, and 2023Q1 improved. The cost rate for the company period in 2022 was 7.68%, compared to -0.66 pct. Among them, the sales/management/finance/R&D expenses ratio was 3.47%/2.07%/-1.47%/3.62%, respectively, -0.19/+0.09/-0.48/-0.08 pct, respectively.

The 2023Q1 company's cost rate for the period was 9.01%, compared to -1.36 pct. Among them, the sales/management/finance/R&D expenses ratio was 4.19%/3.21%/-2.07%/3.68%, respectively.

Profit forecasting and investment ratings: The company's R&D capabilities are leading the industry, developing new customers in an orderly manner on the basis of consolidating stock and customer share. The launch and promotion of new products with easy to wear and take off and new materials is worth looking forward to. We expect the company's revenue in 2023-2025 to be 34.000/39.19/4.417 billion yuan respectively, and the net profit of the mother is 529/624/731 million yuan respectively, and the corresponding valuation is 16/14/12xPE. Optimistic about the company's R&D, cost and production capacity advantages in the field of diaper OEM, covered it for the first time, and gave the company an “increase in holdings” rating.

Risk warning: Overseas markets fell short of expectations, market competition intensified, raw material prices fluctuated, the birth rate of newborns declined, and customer expansion fell short of expectations.