Key points of investment:

The company announced its 2023 results, which were largely in line with expectations. The company's revenue in 2023 was 1,067 billion yuan, up 1.6% year on year; net profit due to mother was 93 million yuan, down 4.9% year on year; net profit after deducted from mother was 0.36 million yuan, down 44.5% year on year. Looking at a single quarter, 23Q4 revenue was 301 million yuan, up 2.3% year on year, net profit to mother was 0.3 million yuan, down 38.4% year on year, after deducting non-return net profit of -20 million yuan, loss. The negative profit fluctuation in 23Q4 is mainly a one-time cost brought about by the shift in Weimizi's measurement method from fair value measurement to equity method accounting. Specifically, fair value change profit and loss of 60.98 million yuan from 16% shares acquired in 2021 are reflected in non-recurring profit and loss; 16% of shares acquired in 2023 are recorded in long-term equity investment accounts, and asset impairment losses of RMB 50.32 million are reflected in operating profit.

The company announced its 2024 quarterly report, and the 24Q1 results exceeded expectations. 24Q1 revenue was 286 million yuan, up 28.3% year on year, net profit to mother was 19 million yuan, up 164.5% year on year, and net profit after deducting non-return to mother was 0.18 million yuan, up 253.1% year on year.

The trend of improving the fundamentals of the main business continued for 2 quarters. For the first time in the company's annual report, the main business revenue was 20% compared to the same period. For details, see:

Toothbrush: Orders have continued to improve, and revenue growth has improved since 23Q4. 23Q4/2023/24Q1 revenue was 13%/6%/16%, respectively. Since August 2023, the company's toothbrush OEM orders have picked up. Currently, on-hand orders have exceeded the peak level in 2022, and revenue growth is expected to improve markedly in 2024. Looking ahead, with the expansion and implementation of production in 2021, the company will continue to expand its mid-range and low-end product line with a large stock of customers, contributing to the increase.

Wipes: High base digestion of disinfectant wipes was completed in 2023, and revenue growth is expected to return steadily in the future. 23Q4/2023/24Q1 revenue was -9%/-10%/38%, respectively. In 2023, high-base digestion of disinfectant wipes was basically completed, and orders for 24Q1 conventional medical wipes increased rapidly.

Other oral care: Expand the range and continue to cultivate large products. 23Q4/2023/24Q1 revenue 1%/11%/42% YoY.

Other oral care segments have a logic of increasing penetration rate and higher market concentration; they bind large brands and have a clear first-mover advantage. Dental floss sticks and dental floss have successively become new major products. In 2024, toothpaste will be introduced to major customers, and it is expected that it will be released quickly.

52% of Sunenkang's shares in the probiotic label were consolidated in early April, and its high growth will soon be reflected in the report. Shanekang promised profit CAGR of 51% in 2024-26, and the current valuation is not reflected in Beijiajie's stock price. The probiotic industry looks at product strength in the long term, production efficiency in the medium term, and the expansion of major customers in the short term; Shanenkang's 2024 marketing supplement marketing leader, boosting lower back customers; strain reserves rank at the top, have strong industrialization capabilities, and the strain has the highest domestic investment yield, and is expected to grow rapidly.

Gross margin has improved, and domestic sales fee control effects have been remarkable. 2023/24Q1 gross profit margin of 23.2%/25.4%, year-on-year -0.8/+3.7pct, mainly due to a decline in the purchase price of raw materials in 24Q1. In 2023, the sales/management/ R&D/ finance expense ratios were 7.0%/4.9%/2.7%/0.7%, respectively, compared to -3.0/+1.0/-0.7/+0.6pct. The sharp decline in sales expenses was mainly due to a decrease in independent brand launches. The 24Q1 sales/management/R&D/finance expense ratios were 8.1%/4.6%/2.7%/0.2%, respectively, compared to +2.0/-1.3/-1.9pct. The sharp decline in financial expenses was mainly due to the completion of Shanenkang's delivery and a decrease in interest income.

The target for high-quality foundry in the oral care circuit. The main customers are in the corner overtaking window period for high-quality domestic brands + stock customers expand their product line to provide follow-up increases; share track dividends for new categories of oral care, and incubate new big products. Endogenous and extrinsic increase the layout of independent brands to open up room for growth! We maintained our 2024 profit forecast of 154 million yuan. Considering that the volume of new categories in our main business exceeded expectations, we raised our 2025 net profit forecast to 207 million yuan (previous value was 178 million yuan), adding 255 million yuan in 2026, 66.5%/34.5%/23.2% year-on-year for 2024-2026, respectively. The PE corresponding to the current market value is 15/11/9 times, maintaining the “buy” rating!

Risk warning: Overseas demand fell short of expectations, raw materials fluctuated beyond expectations, and the progress of the Vimizi acquisition fell short of expectations.