Benefiting from market share expansion and new channel expansion, the three major business segments have maintained good growth momentum:

The tissue business in the third quarter continued to benefit from market share and expansion of new channels, and the good market performance of high-end products such as Yungan Skin Softener and Wet Wipes. However, competition in the market intensified due to falling wood pulp prices, promotional activities increased, and the company also invested in related expenses in the third quarter, but it is expected that the double-digit growth momentum will continue. The sanitary napkin business maintained steady growth and expansion in the third quarter. Among them, the high-end fleece line and sleeping pants all maintained double-digit growth, and the Seven Degrees Space Girl series also steadily increased. However, considering competitive expenses, the third quarter is expected to maintain the growth level of the first half of the year.

The diaper business, driven by the high-end product Chimo and Angela's sports diapers, had a better sales momentum in the third quarter than in the first half of the year.

Thanks to falling raw material prices and product structure optimization, gross margin is increasing quarter by quarter:

The tissue business benefited from the optimization of product structure and the reduction of raw material costs in the third quarter. Although there was a certain increase in expenses, the overall gross margin performance was superior to that of the second quarter, showing a trend of increasing quarter by quarter, which also led to an improvement in the company's overall gross margin. The sanitary napkins and diapers business also saw an increase in gross margin compared to the first half of the year, driven by the optimization of raw material costs and related product structures.

As brand and channel expenses continue to be invested, exchange losses are expected to be drastically reduced:

As the company increased investment in brands and channels, related sales and administrative expenses increased a lot from January to September. It is expected that the cost rate for the third quarter will continue the upward trend in the first half of the year. However, exchange losses are expected to be significantly lower than last year (last year, domestic subsidiaries paid dividends resulting in exchange losses of about 270 million yuan). Overall, the company maintained its double-digit growth momentum from January to September, and the overall improvement continued.

Maintain the “hold” rating with a target price of HK$33.5:

We expect the company's 2023/2024 EPS to be $2.28/2.79, respectively, with a target price of HK$33.5, corresponding to 12 times PE in 2024, and maintain the “hold” rating.