Incident: The company released its annual report and achieved revenue of 2,757 million yuan in 2023, -1.6% year over year; net profit to mother was 439 million yuan, +3.7% year over year; net profit after deducting non-return to mother was 423 million yuan, +7.4% year over year.
Revenue from main products was under pressure in the short term, overseas markets performed well, and independent brand building continued to advance. By product, the company's revenue for baby hygiene products/adult hygiene products/other products in 2023 was 19.76/55/ 148 million yuan, respectively, -2.8%/-10.6%/+69.7%. The increase in revenue from other products was mainly due to the increase in revenue from wet toilet paper and wet wipe products produced by the company. By channel, the company's domestic/overseas revenue in 2023 was 2,371/307 million yuan respectively, -4.4%/+17.6% year-on-year. The year-on-year increase in overseas revenue was mainly due to a sharp increase in the operating income of Thailand's Haoyue and an increase in the business volume of overseas brother companies with major customers. In terms of independent brands, “Hope Baby” uses online platform channels to promote sales growth through marketing and talent cooperation, etc., and to launch a series of seaweed products by optimizing product structure and R&D and application of new materials to increase the unit price of the product, which is conducive to improving the gross margin level; Tafei wet wipes and wet toilet paper home care series products carry out a “big single product strategy” through channels such as Douyin, Tmall, and Xiaohongshu to achieve a rapid increase in sales.
The results of reducing costs and increasing efficiency have been remarkable, and private brand marketing has been increased. In 2023, the company's comprehensive gross margin/net margin was 26.9%/15.9%, +3.8pct/+0.8pct; by product, the gross margins of baby hygiene products/adult hygiene products/ other products were 23.1%/27.6%/55.8%, respectively, +1.8pct/+2.5pct/+22.8pct. The increase in the company's comprehensive gross margin was mainly due to the reduction in procurement costs of raw materials such as polymers, nonwovens, rubber, etc., and the company reduced material costs by increasing the procurement of self-produced non-woven fabrics instead of external procurement. The cost rate for the 2023 period was 9.2%, +1.5pct, with sales/management/ R&D/finance expenses rates of 5.0%/2.4%/3.8%/-1.9%, respectively, +1.5pct/+0.3pct/+0.2pct/-0.4pct. In 2023, the company's sales expenses were +40.8% year-on-year, mainly due to increased promotion of its own brand and an increase in affiliate service fees.
Based on domestic expansion, develop overseas markets simultaneously, and enhance comprehensive competitiveness. The company has already built production bases in Hangzhou, Jiangsu, Thailand, Hubei, etc., and plans to purchase the Huawang Hefei plant in 2024 to be located in the Midwest. Production capacity was gradually released in the Hubei factory in 2023; the Thai factory gradually increased the utilization of production capacity and sold products to neighboring countries such as Laos and Myanmar through cooperation with traditional local channel distributors. In the future, the company will use online and offline multi-channel marketing methods to develop overseas customers and deeply cultivate Southeast Asia and surrounding markets.
Profit forecast and rating: We are optimistic about the company as a leader in personal care foundry, and production capacity release lays the foundation for domestic and foreign expansion. Profitability is expected to increase by increasing the self-production ratio of materials and gradually incubating and cultivating its own brands. The company's net profit for 2024-2026 is estimated to be 500 million yuan, 6.3 billion yuan, and 740 million yuan respectively. The corresponding PE is 11x/9x/8x, respectively. Refer to comparable company valuations and give a “recommended” rating.
Risk warning: Market competition intensifies, channel expansion falls short of expectations; raw material prices fluctuate.