2023 results are in line with our expectations
The company announced its 2023 results: revenue of 23.77 billion yuan, +5.1% year over year; net profit to mother of 2.8 billion yuan, +45.5% year over year; corresponding 2H23 revenue of 11.56 billion yuan, +1.3% year over year; net profit to mother of 1.58 billion yuan, +142.6% year over year. The net profit was basically in line with our expectations.
Development trends
Looking at the main business, the main business recorded good growth performance throughout the year. 2H23 growth slowed down due to disturbances in demand and competition. In 2023, the company's main business revenue increased by 8%, which is good; due to the decline in trade in other raw materials, the company's overall revenue also increased by 5.1%. 2H23's revenue growth has slowed, mainly due to a slowdown in the growth rate of the tissue business. By category, 1) Tissue: 2H23 revenue +2.7% YoY, growth slowed mainly due to increased market price competition in the context of falling pulp prices. Looking at tissue revenue +12.2% year-on-year, steady performance throughout the year; 2) Sanitary napkins: 2H23 revenue was -2.3% YoY, similar to the tissue business, with annual revenue +0.4% YoY, mainly driven by high-end products and outperformed the industry; 3) Diapers: 2H23 revenue +3.5% YoY, +4.3% YoY Reversing the decline in diapers in previous years, It mainly benefited from the 20% + increase in high-end Q·MO and the good growth of adult diapers. Looking at each channel, the company's e-commerce and new retail channel revenue increased 18% year over year, driving the online share to increase by about 3ppt to 30%, demonstrating the company's smooth expansion of online channels.
Thanks to lower costs, 2H23's gross margin improved as scheduled, and the cost ratio investment was steady throughout the year. 2H23's gross margin was +3.7ppt year on year, mainly benefiting from the decline in pulp and other costs. The gross margin for the whole year was -0.3ppt year over year. The 2H23 sales rate was 2.1 ppt year over year, mainly due to the base and the pace of cost investment. Looking at the sales rate, the year-on-year sales rate was basically the same. Furthermore, benefiting from a drastic reduction in exchange losses in '23, the company's reporting profit increased significantly.
Profitability is expected to improve slightly after 24 years of moderate growth. Our grassroots research shows that due to the high base for the same period last year, the company's sales performance in January-January was relatively lackluster, but sales growth picked up in March; considering the contribution of new products and further expansion of e-commerce channels, we expect the company's sales to grow moderately in 24, and all categories are expected to achieve positive growth. On the cost side, despite the recent rise in pulp prices, considering high-priced raw materials in the first half of last year, we expect that the 24-year cost may still be slightly beneficial. At the same time, considering product structure optimization, we expect the company's gross margin and net margin to improve slightly year-on-year.
Profit forecasting and valuation
Basically maintaining the 24-year profit forecast; introducing a 25-year profit forecast of $3.46 billion, the company's current transaction is 8.0/7.4 times 24/25 P/E; maintaining a target price of HK$34.5, corresponding 10.6/9.8 times 24/25 P/E and 32.7% share price upward space, maintaining a neutral rating.
risks
Market price competition has intensified, new product performance has fallen short of expectations, and raw material prices have risen sharply.