1-3Q23's performance fell short of our expectations
Jieya Co., Ltd. announced 1-3Q23 results: revenue of 447 million yuan, -14.9% year-on-year; net profit of 94 million yuan, -27.4% year-on-year, lower than our expectations, mainly due to the decline in sales of disinfectant wipes.
On a quarterly basis, the company's 1Q/2Q/3Q23 revenue was -29.2%/-15.2%/+1.0% year on year; net profit was -21.4%/-33.3%/-28.4% year on year, respectively.
Development trends
1. The impact of the disinfectant wipes business is expected to gradually be eliminated, and the revenue performance of wet toilet paper is impressive. The revenue of 1-3Q23/3Q23 was 447/168 million yuan, -14.9%/+1.0% year-on-year, mainly due to the decline in the export of disinfectant wipes. We expect the disinfectant wipes business to have basically fallen back to the normal order demand level before the pandemic, and the disturbances in performance are expected to lessen in the future. By business, ① wet wipes products: We expect the 1-3Q23 adult wipes business to benefit from increased sales in the wet toilet paper category, with revenue increasing by more than 25% year over year; sales of disinfectant wipes declined significantly year over year, and baby wipes and other series of wipes are also under pressure. ② Face mask products: We believe that 1-3Q23 revenue declined year-on-year, mainly due to the decline in orders from some major customers.
2. Changes in customer and product structure drag down profitability. The gross margin of the 3Q23 company was 29.1%, -5.6ppt year-on-year and -0.1% month-on-month. We expect it to be mainly due to changes in customer structure and product structure. The expense ratio for the 3Q23 period was +9.3ppt to 13.9%, with the sales/R&D expense ratio being +1.7ppt/+0.5ppt; the management fee rate was +2.5ppt to 8.5% yoy, mainly due to the increase in intermediary agency fees and shared share payment expenses; and the financial expenses rate was +4.7ppt to -1.3% year on year, mainly due to a decrease in interest income and exchange earnings. Under the overall influence, the 3Q23 company's net interest rate was -7.0ppt to 17.0% year on year.
3. The leading wet wipe manufacturer continues to develop the cosmetics business and focus on the development of new customers. Looking ahead, we believe: ① Wet wipes business: the company has a high-quality customer base, maintains long-term stable cooperation with Woolworths, Kimberly, etc., and continues to expand domestic brand customers, and is expected to achieve steady growth in the future; ② Cosmetics business: Gechuang Medical, a holding subsidiary of the company, obtained two Class II medical device registration certificates (recombinant collagen dressing/liquid dressings) in August, and the company is expected to expand from makeup brand products to device brand products, continuously enriching the product matrix. Furthermore, the company announced on October 9 that it plans to jointly invest with institutions and natural persons such as Zhuoshi Mingyu in Xiamen to establish an equity investment fund. Among them, the company, as a limited partner, plans to pledge an investment amount of 80 million yuan with its own capital. We believe that the company actively optimizes the investment structure and is expected to strengthen the industrial chain layout through fund investment, consolidate its leading position in the industry and enhance its overall competitiveness.
Profit forecasting and valuation
Considering increased market competition and disruptions to performance in the disinfectant wipes business, we lowered 2023/2024 net profit 15%/16% to 136/156 million yuan. The current stock price corresponds to 21/18 times the 2023/2024 price-earnings ratio. Maintaining an outperforming industry rating, but considering that the company is actively developing new customers and new categories such as wet toilet paper, which is expected to drive growth, we maintain a target price of 41 yuan, corresponding to 24/21 times the 2023/2024 price-earnings ratio, with 18% room to increase from the current stock price.
risks
There is a risk of fluctuations in raw material prices, capacity utilization falling short of expectations, and customer expansion progress falling short of expectations.