Introduction to this report:

The company's 2024Q1 profitability exceeded expectations, mainly due to lower costs and narrower rates. The acquisition of Sunenkang lays out a probiotic circuit, which is expected to achieve steady growth in revenue and profit.

Key points of investment:

Conclusion: The company's main business is growing steadily, and epitaxial mergers and acquisitions have opened up room for growth, maintaining the 2024-2025 EPS forecast of 1.39/1.65 yuan, adding the 2026 EPS forecast of 1.91 yuan, maintaining the target price of 33.36 yuan, and maintaining the “gain” rating.

Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 1,067 million yuan/ +1.58%, realized net profit of 93 million yuan/ -4.93%, 2024Q1 achieved revenue of 286 million yuan/ +28.29%, and realized net profit of 119 million yuan/ +164.53%.

2024Q1's profit increased significantly, mainly due to lower costs and narrower rates. 1) Toothbrush:

Revenue 119 million yuan/ +15.76%, sales volume 100 million units/ +13.45%, unit price 1.19 yuan/ -4.71%. 2) Wipes: Revenue of 94 million yuan/ +37.89%, sales of 1,265 million tablets/ +42.83%, unit price 0.07 yuan/ -3.46%. 2024Q1 has a gross profit margin of 25.38% /+3.74pct. The main reason is that the average purchase price of brush wire and plastic particles in raw materials decreased by 18% and 9%, respectively, and the management fee ratio was 4.60% /-1.32pct and financial expenses narrowed, and 24Q1 achieved a net profit margin of 6.63% /+3.42pct.

The main business is developing steadily, and extension opens up incremental growth. 1) Main business: The company's toothbrush foundry business binds leading customers, and new categories such as dental floss and dental floss sticks are growing rapidly, and toothpaste is expected to be released in volume. The fluctuation of wipes affected by the pandemic has been lifted in 2023, and young people are expected to enter the market by 2024. After the company's organizational structure was adjusted, marketing was implemented into divisions to further activate growth momentum. 2) Outreach: Vimezi's performance is stable. The acquisition of 52% of Sunenkang's shares has been settled. Sunenkang is an integrated probiotic industry chain company, which is expected to achieve rapid growth through R&D advantages and expansion of downstream application scenarios, and later contribute to the company's revenue and profit growth.

Risk warning: Share fluctuations in major customers; industry competition puts pressure on product prices.