Introduction to this report:

The company's 2023 performance is in line with expectations. High-end products have grown significantly, the reduction in raw material costs and the narrowing of exchange losses have significantly increased profits. We are optimistic about future profit improvements under enhanced fee control and product upgrades.

Summary:

Conclusion: The company's revenue for 23 years was 23.768 billion yuan/ +5.1%, and net profit to mother was 2,801 billion yuan/ +45.5%.

23H2's revenue was 11.563 billion yuan/ +1.3%, and the net profit to the mother was 1,575 billion yuan/ +142.6%. The performance was in line with expectations. Considering the increase in the share of the company's high-end products, the 24-25 net profit forecast was raised to 29.23/3.012 billion yuan (previously 20.62/2,231 billion yuan), and the target price was lowered to 31.08 billion yuan (originally 31.86 yuan), maintaining the incremental rating.

The performance was in line with expectations, and tissue & diapers showed impressive growth. 1) Tissue: 23H2's revenue was 6.578 billion yuan/ +2.7%. Among them, revenue from the high-end product Yunfan Skin Care series increased 26.6% year on year, and revenue from wet wipes increased 10.5% year on year. The growth of the tissue business was due to a 26.1% year-on-year increase in revenue from e-commerce and new retail channels. 2) Sanitary napkins: 23H2's revenue was 2,959 million yuan/ -2.3%. The company launched a Tianshan cashmere upgrade and signed contracts with young artists such as Zhao Jinmai to enhance brand vitality. The revenue of pants-type sanitary napkins increased 73.4% year-on-year, and the increase in sales of high-end products hedged the pressure on the industry. 3) Diapers:

23H2 revenue was 589 million yuan/ +3.5%. High-end diapers Q·MO increased by about 21.8% year on year. Adult diapers benefited from increased industry penetration rate, and revenue increased 11.5% year over year.

Reduced raw material costs combined with narrowing exchange losses, significantly improving profits. The sharp increase in net profit due mainly to the narrowing of exchange losses (22H1/22H2/23H1/23H2 was -3.68/ -5.42/-1.82 billion, respectively). After excluding exchange effects, 23H2 net profit to mother increased 32.4% year-on-year, mainly due to declining wood pulp costs and improved gross margin. Business division: 1) Tissue: 23H2 gross profit margin 26.1% /YoY +7.6pct/month-on-month +8.4pct, 2) Sanitary napkins: 23H2 gross profit ratio 66% /YoY -2.4pct/month-on-month +4.2pct, 3) Diapers: 23H2 gross profit margin 40% /YoY +1.2pct/month-on-month +4pct. 23H2's overall profit was better than in the first half of the year, mainly due to the reduction in raw material costs.

E-commerce and new channels continue to gain strength, and we are optimistic about improving profits under enhanced fee control and product upgrades.

23H2 e-commerce and new retail revenue was 3.66 billion yuan/ +7.6%. New channels such as Retail Connect and Community Group Buying are progressing well. Looking ahead to 24 years, it is expected that the pricing strategy will remain stable and the cost investment will be more careful and accurate. Core products continue to be upgraded and iterated, and target remuneration systems are implemented to improve efficiency. The product structure is expected to continue to improve, driving profit growth.

Risk warning: raw material costs continue to rise; industry competition intensifies.