Introduction to this report:
The company's revenue in 2023 declined slightly due to post-pandemic inventory, but the company's leading position in the laundry cleaning industry was stable, and gross margin increased significantly. The net profit pressure on the mother was mainly due to a sharp increase in promotion expenses.
Summary:
Conclusion: The company achieved revenue of HK$7.324 billion/-7.8%, gross profit of HK$4.540 billion/-1.2%, and net profit of HK$325 million/-46.8% for the full year of 2023. 2023H2 achieved revenue of HK$5.101 billion/+0.7%, gross profit of HK$3.313 billion/+8.0%, and net profit to mother of HK$158 million/ -65.9%. Considering that the company's profit is under pressure in the short term, the 2024-2025 EPS forecast was lowered to HK$0.10/0.11 (previously HK$0.13/0.14), and the 2026 EPS forecast was added to HK$0.14. Referring to comparable company valuations, the company's target price was lowered to HK$2.30 (previously HK$2.47) to maintain the “gain” rating.
2023H2's revenue remained flat, and the main clothing cleaning business grew well. 1) By product: Clothes cleaning revenue HK$4,543 million/ +4.0%, personal cleaning revenue HK$327 million/ -15.8%, household cleaning revenue HK$231 million/ -24.2%. 2) Channel division: Achieved online revenue of HK$2,357 million/+3.4%, offline revenue of HK$2.112 billion/-2.7%, and direct sales achieved revenue of HK$631 million/+3.3%. The company's leading position in clothing cleaning is stable. 2023H2 launched Clean Enjoy Foam Body Wash to vigorously promote the sale of sports laundry detergent, effectively enriching the product structure and increasing gross profit. The channel side increased its layout on the JD and Douyin platforms. The rankings remained stable during the “618” and “Double Eleven” periods, and offline channels declined slightly due to the normalization of customer inventory after the epidemic.
There was a marked increase in gross profit, and promotional expenses put pressure on profits. 2023H2 gross profit margin of 64.9% /+4.4pct, net profit margin of 3.1% /-6.0pct, gross margin improved at an accelerated pace. The pressure on net profit was mainly due to a sharp increase in promotion expenses. 2023H2 promotion expenses were HK$1,024 billion/+229.4%, and promotion expenses as a share of revenue increased 13.9 pcts, mainly due to companies increasing multimedia and omni-channel layout and enhancing the impact of consumer education.
Offline channels continue to be optimized, and it is expected that growth will resume. The company has clear goals for offline channels, and clearly formulates corresponding indicators according to distributor coverage, store coverage, exclusive shelf coverage, and brand penetration. Upgrading the sales chain management system is expected to optimize distributors' inventory situation. The incentive plan for sales representatives can also fully drive terminal sales enthusiasm, and offline channels are expected to use their advantages to return to growth.
Risk warning: Price competition intensifies pressure on profits; market recognition of new products is low.