2023 results fall short of our expectations
Jieya Co., Ltd. announced 2023 results: revenue of 623 million yuan, -6.6% year on year; net profit to mother of 115 million yuan, -18.3% year over year. The performance was lower than our expectations, mainly due to a decrease in export revenue, which affected the decline in sales unit price and gross margin, as well as an increase in impairment losses on fixed assets. On a quarterly basis, 1Q/2Q/3Q/4Q23 revenue was -29.2%/-15.2%/+1.0%/+24.4% year-on-year, while net profit to mother was -21.4%/-33.3%/-28.4%/+79.7% year-on-year, respectively.
Development trends
1. After excluding the impact of the disinfectant wipes business, revenue was +10% year-on-year, and gross margin was under pressure. In 2023, the company's revenue decreased 6.6% year on year, mainly due to the year-on-year decline in sales revenue for medical and antibacterial disinfectant wipes. If the impact of disinfectant wipes is excluded, revenue was +10% year over year; due to changes in product and customer structure, the comprehensive gross margin was -1.8ppt to 29.6% year over year. By business, ① wet wipe products: 2023 revenue -10.9% to $524 million; gross margin -2.8ppt to 24.9% yoy; ② facial mask products: 2023 revenue was 67 million yuan, +15.6% yoy, gross margin -5.0ppt to 48.3% yoy; ③ care products: affected by price reductions for some products and a decrease in the revenue share of products with higher unit prices, 2023 revenue was 1,425,000 yuan, -34.8% year-on-year, and gross margin -2.4ppt to 37.3% yoy.
2. Management expenses have increased, combined asset impairment has increased, and profitability has declined. The company's expense ratio for 2023 was +3.4ppt to 11.1% year-on-year. Among them, the sales expense ratio and management expense ratio were +0.5pp/ +2.5ppt to 1.6%/7.8% year over year, mainly due to increases in brand consulting fees and employee remuneration; the financial expense ratio was +0.6ppt to -1.9% year over year, mainly due to the decline in capital interest income and exchange benefits. The R&D cost rate was -0.2ppt to 3.6% year-on-year. In addition, the company accrued fixed asset impairment losses of about 0.1 billion yuan for some disinfectant wipes production lines. Under the combined influence, the company's net interest rate in 2023 was -2.6ppt to 18.5% year-on-year.
3. Focus on high-quality customers and the development progress of new projects. Looking forward to the future, we believe: ① Wet wipe business: The company has established a good foundation of cooperation with domestic and foreign customers such as Woolworths, Kimberly, Johnson & Johnson, Hangzhou White Shell, Nature Group, Oriental Choice, etc., and we expect to achieve steady growth by expanding booming categories such as wet toilet paper; in addition, the company initiated the establishment of the “Yashi Sharing Award” fund to invest in and incubate brand companies in the wet wipes category, empowering the invested companies with the company's R&D and manufacturing advantages; ② Cosmetics business: The company's R&D center in Shanghai, with cosmetics research and development as the main function, is officially put into operation We It is believed that it is expected to strengthen product development and market development capabilities. Follow the development progress of high-quality customers.
Profit forecasting and valuation
Considering the decline in gross margin due to changes in the company's product and customer structure, we lowered net profit by 14% and 13% to 2024 and 2025 to $134 million and $157 million. The current stock price corresponds to 15 times/13 times the 2024/2025 price-earnings ratio. Maintaining an outperforming industry rating, but due to adjustments in profit forecasts, we lowered our target price by 15% to 35 yuan, which corresponds to 21x/18 times the 2024/2025 price-earnings ratio, and has 37% upside compared to the current stock price.
risks
There is a risk of raw material price fluctuations, capacity utilization falls short of expectations, and customer expansion progress falls short of expectations.