We expect the profit margin of traditional sunscreen agents to be stable in 24 years. New sunscreen agents will continue to grow rapidly along with the improvement of the concept of sunscreen, and the sunscreen market will become increasingly specialized/diversified in effects/group segmentation. The number of sunscreen product registrations approved in China in '23 increased significantly compared to '22, laying the foundation for rapid market growth in '24. Various brands are actively promoting new preparations for the peak sun protection season. Thanks to the economic dividend, the total profit of the five traditional sunscreens is expected to be stable for 24 years. Revenue from new sunscreen products is expected to continue to grow rapidly, and the share of profit is expected to increase markedly. There is still a big gap between small and medium players and the size of the company. It takes time for new players to enter, and the company has a comprehensive variety layout/accumulates high-quality customers/has a strong scale advantage. Demand for sunscreen is still strong. EPS was raised to 4.38/5.63/6.92 yuan in 23-25 years (previous value 4.10/5.13/6.02 yuan), compared to the company's 24-year Wind's consistent profit forecast 23 times PE. Considering the decline in market risk appetite since 23H2, 18 times PE was given, and the target price was 101.34 (previous value of 117.76 yuan), maintaining the purchase rating.

We expect the total profit amount of the 5 traditional sunscreens to remain stable for 24 years. The market is worried that the five traditional sunscreen AVB/OS/OS/HMS may face a drop in prices/sharp collapse in profit margins after 22-23 years of price increases. However, due to the fact that the sun protection boom is still high/the supply of effective new production capacity is insufficient, the overall price market is stable. Unlike market concerns, the overall profit amount is expected to rise steadily in 24 years. Among them, OCT was previously affected by a sharp increase in raw material costs, and the price increase was significant (the normal price level was about 50,000 yuan/ton before '21; we estimate that the price rose to over 100,000 yuan/ton in '23), and the price drop was relatively obvious in '24. Conservatively, net profit per ton fell by double digits compared to '23, but the share of profit in '24 was less than 10%. Inventory was tight due to the Indian manufacturer's fire in December '23, and increased customer demand for AVB/OMC was positively hedging the decline in OCT's profit.

We expect new sunscreens to continue to grow rapidly

PS: Thanks to its outstanding sunscreen performance and breakthroughs in application formulation technology, brands are in strong demand. We expect to ship about 2000 tons in 24 years (exceeding our previous expectations of 1600 tons) /yoy 100%, and the price is stable. EHT and PA: 23H2 production expanded, and is expected to continue to grow rapidly in 24. We expect shipments to be around 1900/1000 tons in 24, respectively, with 90%/100% yoy, and stable prices.

We estimate that the net profit of new sunscreen products contributed about 70% in '24.

It takes time for new players to enter. It is difficult to quickly disrupt the sunscreen market pattern. Active agents account for relatively little cost in personal care products but play a decisive role in efficacy claims, skin feel, etc. Downstream customers require higher quality, safety and supply stability, and the development history of small and medium players such as Meifeng/Huayang is not short/but the gap with the company's size is still large (about 7/500 million + in 23 years, respectively). It takes longer for new entrants to enter the market. Judging from the company's process of expanding major customers, L'Oréal: After starting the relevant certification process, the company completed the evaluation in 2013, and began selling through dealers in 2014; Johnson & Johnson:

Multiple rounds of communication and evaluation began in 2013, and a business relationship was established in 2018, until 2019, the company's sales to L'Oréal/Johnson were 2,389/24.52 million.

Risk warning: Macro factors such as exchange rate/oil price/shipping fluctuate greatly; demand weakens; prices fall.