The company released the 2023 Annual Report & 2024 Quarterly Report: 1) 2023: Achieved revenue of 1,067 million yuan (YoY +1.6%), net profit of 93 million yuan (YoY -4.9%), net profit of 36 million yuan (YoY -44.5%); Single Q4 achieved revenue of 301 million yuan (+2.3% YoY), net profit attributable to mother of 0.3 million yuan (YoY -38.4%), net profit of -20 million yuan (YoY -166.7%); 23Q4 profit performance slightly fell short of expectations, mainly due to : High base for the same period in 2022. In addition, Vimezi's statement caliber changed after incorporating long-term equity investment accounting, and the acquisition of Sian Enkang resulted in a one-time cost, which actually restored steady performance at the operating level. 2) 2024Q1: Achieved revenue of 286 million yuan (YoY +28.3%), net profit attributable to mother of 0.19 million yuan (YoY +164.5%), deducted net profit of 0.18 million yuan (YoY +253.1%), improved endogenous resonance and orderly expansion of epitaxial extension.
Resonance improvements in OEM toothbrushes and wipes, release of new categories & private brands. In 2023, toothbrushes/wipes and other oral care products achieved revenue of 463 million yuan/336 million yuan/259 million yuan respectively (+6.2%/-9.9%/+11.1% year-on-year).
The toothbrush business continues to grow steadily, and subsequent orders are expected to improve along with increased share and customer expansion; the wet wipe business is expected to grow rapidly after the 2024 base returns to normal; new categories have achieved rapid growth. Among them, major customers in the toothpaste business are expected to successfully introduce and achieve breakthroughs, and new products such as dental floss, floss sticks, and mouth spray will continue to be sold. The company continues to implement the big customer strategy, and will continue to cultivate existing customers and expand the boundaries of cooperation in 2023; at the same time, successfully breaking through international brands & growing customers, it is expected to contribute to revenue growth in 2024. In terms of private brands, products & brands have been renewed and upgraded, brand and channel construction are progressing steadily, and profit improvements can be expected.
Flat & platform-based development has achieved remarkable results in cost reduction and efficiency. The company continued to optimize the organizational structure. In 2023, the marketing center set up an AT team, changed from individual decisions to group reviews, and flattened the original three-tier organization of the marketing center into two layers to establish a GTM organization based on the product line to improve team efficiency; at the same time, a new product management department was set up to initially complete the construction of product maps for key product lines such as wipes, dental floss, orthodontic series, toothpaste, etc.; the procurement department implemented the separation of “procurement” and “purchase”. The design department strengthened internal collaboration, and the number of new products launched at the same time reached 143%, laying the foundation for subsequent business expansion.
Epitaxial targets are growing rapidly, and there is plenty of room for growth. 1) Vimezi: By the end of 2023, the company held 32.3% of Vimesi's shares, making it the single largest shareholder of Vimesi, the leading oral care brand. Its Scherke brand ranked fourth in market share. E-commerce data is expected to continue to increase, and the brand continues to expand rapidly; 2) Sun Enkang:
The company holds 52.0% of Shanenkang's shares. Shanenkang is a domestic supplier of probiotic raw materials. The strain bank is rich, downstream customer resources are stable, and production capacity implementation is expected to unleash performance flexibility. The performance promise is to achieve deduction of non-net profit of not less than 1200/18/30 million yuan in 2024/25/26, respectively.
Improved cash flow and stable operating capacity. Net operating cash flow in 2023 was 155 million yuan (+404 million yuan year on year), and 24Q1 was 48 million yuan (+47 million yuan year over year). In terms of operating capacity, as of 2024Q1, the number of accounts receivable turnover days was 61 days (-3 days year over year), the number of accounts payable turnover days was 59 days (+6 days year over year), and the number of inventory turnover days was 69 days (year-on-year - 7 days).
Profit forecast and investment rating: Toothbrush and wet wipe foundry resonance improved, major toothpaste customers were successfully introduced, and Vimesi brought incremental revenue to the company's performance through equity method accounting. Considering the adjustment of Vimezi's accounting methods, we lowered our 2024-2026 net profit forecast to 140 million yuan, 170 million yuan, and 210 million yuan, corresponding PE to 15.9X, 13.2X, and 11.0X, maintaining the “buy” rating.
Risk warning: New customer expansion falls short of expectations, increased industry competition, fluctuating raw material prices, risk of impairment of goodwill.