1H23 performance is basically in line with our expectations

Haoyue Nursing announced 1H23 results: revenue of 1,357 million yuan, +6.3% year on year; net profit of 200 million yuan, +24.1% year on year, which is basically in line with our expectations. On a quarterly basis, 1Q/2Q23 achieved revenue of 632/725 million yuan, +22.8%/-4.8% year on year, respectively; net profit of 0.79 to 120 million yuan, +44.6%/+13.5% year on year.

Development trends

1. The fall in raw material prices and the increase in the proportion of non-woven fabric self-produced have jointly driven a significant improvement in gross margin.

1H23's revenue was 1,357 million yuan, +6.3% year on year; gross margin was +3.2ppt to 25.7% year on year. We believe this was mainly due to falling raw material prices, scale effects showing dilution of fixed costs, increased proportion of non-woven self-production, and increased share of high-margin private brand sales. By product, ① Baby hygiene products: 1H23 revenue was +9.7% year-on-year to 997 million yuan, which still achieved steady growth against the backdrop of pressure from industry demand; gross profit margin was 22.5%, +0.8ppt; ② Adult hygiene products: 1H23 revenue was -6.9% year-on-year to 263 million yuan. We expect to be mainly dragged down by falling income from adult incontinence products; gross margin +3.7 ppt to 26.4% year over year; ③ Other products: 1H23 revenue was 69 million yuan, +19.5% year on year; gross profit margin was 47.7%, year on year + 33.0ppt, we expect strong sales performance in categories such as our own brand wet toilet paper and kitchen wipes.

2. The fee rate fluctuated slightly during the period, and the 2Q23 net interest rate increased to 16.6% year-on-year. 1H23 The company's period expense rate was +0.4ppt to 8.8% year on year, of which the sales expense rate was +0.6ppt to 4.4% year on year. We think it was mainly due to the company increasing the promotion of its own brand products; the management expenses rate was +0.5ppt to 3.0% year on year, mainly due to increased employee compensation and depreciation; R&D expense rate -0.1ppt to 3.6% year on year; and financial expense rate -0.6ppt to 2.1% year on year, mainly due to increased interest income. Under comprehensive influence, 1H23's net interest rate was +2.1ppt to 14.7% year on year, of which 2Q23 net interest rate was 16.6%, +2.7ppt year on year.

3. Follow the launch progress of new products such as easy-to-wear period pants and the progress of private brand building. In response to consumer demand pain points, the company has developed new products such as easy-to-put on and take off period pants and easy-to-wear baby pull-ups with innovative structures and functions. The company expects to soon promote and apply them to the market. We expect that after the product is launched, it is expected to replace some of the demand for daily sanitary napkins and baby diapers. At the same time, the company's own brand “Hope Baby” developed the “Made in China” series of baby care products and was selected as the “2022 Douyin Super Emerging Brand”; “Dafei” focuses on personal care products, launches categories such as wet toilet paper and kitchen wipes, and uses channels such as Xiaohongshu and Douyin for marketing and promotion. Follow the progress of independent brand building and refined operation.

Profit forecasting and valuation

Taking into account increased competition in the industry, we lowered our 2023/2024 net profit by 6% and 6% to 520 million and 646 million yuan. The current stock price corresponds to 12 times/10 times the 2023/2024 price-earnings ratio. We maintain an outperforming industry rating, but due to lower profit forecasts, we lowered our target price by 8% to 60 yuan, corresponding to 18 times/14 times the 2023/2024 price-earnings ratio, which has 47% room for improvement from the current stock price.

risks

The risk of increased competition in the industry; the risk of a decline in the birth population; the risk of new product launches falling short of expectations.