occurrences

The company released its 2023 annual report.

Comment:

Revenue decline narrowed in '23, putting pressure on profitability

On the revenue side, the company achieved revenue of 623 million yuan in '23, a year-on-year decrease of 6.60%. This was mainly due to a 57.01% year-on-year decline in the medical and antibacterial wipes business. On the profit side, in '23, the company achieved net profit of 115 million yuan, down 18.28% year on year; gross profit margin 29.62%, down 1.84 pct year on year; net profit margin 18.4%, down 2.75 pct year on year. On the cost side, the company's sales expenses rate in '23 was 1.55%, an increase of 0.48pct over the previous year. The management fee rate was 7.8%, an increase of 2.52 pct over the previous year. The increase in management expenses was mainly due to increased amortization of share payments in consulting fees and equity incentives. The financial cost ratio was -1.92%, up 0.62 pct year on year; R&D cost ratio was 3.62%, down 0.18 pct year on year.

Looking at Q4 alone, the company achieved operating income of 175 million yuan, a year-on-year increase of 24.41%; realized net profit to mother of 122 million yuan, an increase of 79.67% over the previous year. In 24Q1, the company forecasted net profit of 12 to 16 million yuan, a year-on-year decrease of 67.80%-57.07%, mainly due to a sharp year-on-year decrease in large compensation income from confirmed customers and a year-on-year decline in the company's gross margin of product sales.

Both the non-disinfectant wipes and mask business have achieved steady growth. Looking at the basic elimination business of disinfectant wipes, the company's wet wipe product revenue in '23 was 524 million yuan, down 10.90% from the previous year, and the excluding disinfectant wipes business increased by 7.13%. Currently, orders for disinfectant wipes have returned to normal levels. The gross profit margin of the wet wipe business was 24.89%, down 2.82 pcts year over year. The decline in sales prices is mainly due to a decrease in revenue from export products with higher unit prices. Mask product revenue was 66.55 million yuan, up 15.65% year on year, gross profit margin was 48.28%, down 5.04 pct year on year. Revenue from laundry products was 1,425 million yuan, down 34.78% year on year, gross profit margin was 37.25%, down 2.40 pct year on year. The decline in sales prices was mainly due to price cuts for some products and a decrease in the share of revenue for products with higher prices. In terms of capacity utilization, the company's wet wipes/mask/body care capacity utilization rate in '23 was 69.04%/95.09%/9.84%, respectively, and another 4.5 billion wipes production capacity is under investment and construction.

Based on the main business of wipes, expand the beauty layout

The company has focused on the R&D, production and sales of wet wipes products for many years, and has established stable cooperative relationships with Woolworths, Kimberly, Johnson & Johnson, L'Oréal, P&G, Lijie Shi, and domestic customers such as Hangzhou White Shell, Shizentang Group, and Oriental Choice. Vertical, in '23, the company guaranteed the long-term stability of the supply of non-woven fabrics as the main raw material by participating in Sateri; it initiated the establishment of the “Yashi Gongshang” fund to invest in incubating downstream brand companies. Hengshang, the company increased its beauty business layout in '23, and the Shanghai R&D center with cosmetics research and development as its main function was officially put into operation; Jiechuang Medical, which was jointly invested and established with Jiangsu Chuangjian, obtained two Class II medical device registration certificates; and Jieya passed the review by the Anhui Drug Administration and obtained a medical device production license. In the future, the cosmetics layout is expected to continue to be rich, creating the second pole of growth.

Investment advice and profit forecasting

The company is a leading manufacturer of wet wipes in China and has entered the cosmetics circuit layout to restructure collagen. We expect to achieve revenue of 6.69/75/ 856 million yuan in 2024-2026, net profit of 1.14/1.30/149 million yuan, EPS of 1.40/1.60/1.83 yuan, corresponding to PE18/16/14x, and maintain a “buy” rating.

Risk warning

The risk of increased competition in the industry, the risk of cosmetics business expansion falling short of expectations, the risk of project commissioning falling short of expectations, and the risk of industry policy supervision.