Incident Overview

The company released its annual report for the year 23: the company achieved revenue of 1.07 billion yuan, a year-on-year increase of 1.6%, a year-on-year decrease of 4.9%, net profit deducted from the mother of 35.9.7 million yuan, a year-on-year decrease of 44.5%. In the Q4 single quarter, the company achieved revenue of 30 billion yuan, a 2.3% year-on-year increase, a net profit of 334.19 million yuan, a year-on-year decrease of 38.4%, after deducting net profit of 1989.91 million yuan, a year-on-year decrease of 166.7%. Profit side performance was poor. In particular, there was a sharp decline in Q4, mainly due to the company's calculation of impairment preparations. Among them, the biggest impact was the 23-year long-term equity investment impairment provision of 50.32 million yuan (impairment preparations for participating company Vimezi, due to one-time costs brought about by the shift in measurement methods for Vimezi acquisitions from fair value to equity law). In addition, in terms of cash flow, the net cash flow from the company's operating activities in '23 was 150 million yuan, +2.6% over the same period; the company plans to distribute a cash dividend of 2 yuan for every 10 shares to all shareholders, for a total of 0.2 billion yuan in cash dividends.

The company also announced its quarterly report for the year 24:24Q1 achieved revenue of 290 million yuan, a year-on-year increase of 28.3%, net profit to mother of 18.943 million yuan, an increase of 164.5% year-on-year, and net profit of 18.28 million yuan after deducting net profit from back to mother, an increase of 253.1% year-on-year. The net cash flow from 24Q1's operating activities was 50 million yuan, +3947.7% year-on-year, mainly due to a year-on-year increase in sales repayments during the reporting period.

Analytical judgment:

Revenue side: The decline in wet wipes narrowed markedly in '23. The revenue ratio of oral care products increased by product. In '23, the company's oral care products and wet wipe products achieved revenue of 720 million yuan and 340 million yuan, respectively. Toothbrushes and other oral care products in oral care achieved revenue of 46.2% and 260 million yuan respectively in 23 years, respectively. Contributing revenue ratios were 43.4% and 24.3%, respectively, up from '22. Slightly lower than in '22. Specifically, 23 companies sold 360 million toothbrushes, or -4.4% YoY; the average price of toothbrushes was 1.26 yuan/stick, +11.1% YoY; the company sold 4.44 billion wipes, -6.1% YoY; the average price of wet wipes was 0.08 yuan/piece, -3.9% YoY. The average price of toothbrushes in the company increased in '23, while the average price of wipes declined slightly, but the decline in sales was significantly narrower than in '22. Looking at 24Q1, the average price of the company's toothbrushes and wipes was 1.19 and 0.07 yuan respectively, -5.0% and -7.0% year-on-year respectively. The average price of toothbrushes and wipes declined.

Profit side: Profitability declined slightly in '23. In terms of optimizing profitability of sales expenses, the company's gross profit margin was 23.19% in 2023, -0.78pct year on year, with Q4 gross profit margin of 25.38% and -4.72pct year on year. By product, the gross margins of the company's oral care products and wet wipes products in '23 were -0.05pct and -2.96pct, respectively, to 23.73% and 21.27%. The company's net interest rate in '23 was 8.67%, -0.59pct year on year, of which Q4 had a net profit margin of 6.63% in a single quarter and -7.33pct year on year. In terms of period expenses, the 23-year company's expense ratio was 15.36%, year-on-year -2.08pct, with sales/management/development/finance rates of 6.99%/4.94%/2.74%/0.70%, respectively, and -2.99/+1.03/-0.72/+0.59pct, respectively. The decline in sales expenses in 23 was clearly due to a relative reduction in operating expenses invested in our own brand. The slight increase in management expenses was mainly due to an increase in consulting service fees for Tibet Fuyang Window Industry Investment Management Company. The 24Q1 company's gross profit margin and net profit margin were 25.38% and 6.63%, respectively, and profitability increased year-on-year. The 24Q1 company's period expense ratio was 15.51%, -1.55pct year on year, of which the sales/management/R&D/finance ratio was 8.07%/4.60%/2.68%/0.17%, respectively, +2.01/-1.33/-1.91pct.

Accelerate epitaxial expansion and help the company's second growth curve

As of the end of 2023, the company held 32.27% of Vimice's shares, making it the single largest shareholder of Vimesi. Vimezi is a leading provider of oral care products in China. Its “Schuke” and “Schuke Baby” enjoy high popularity. In the future, it helped the company strengthen the business partnership with Weimizi, further cultivate the oral health circuit, and accelerate the gradual transformation from ODM OEM to its own brand; in addition, the company also obtained 52% of Sunenkang's shares (delivery completed on April 7, 2024). Shanenkang is mainly engaged in R&D, production and sales of the entire probiotic industry chain. It provides one-stop solutions for the fields of food, health, pharmaceuticals, dairy products, health products, daily chemicals, etc., which helps expand the company's business scope and help achieve the company's second growth curve goal.

Investment advice:

The company's Golden Track for Dental Health is a leading manufacturer of toothbrushes and wipes. It is a leading manufacturer of toothbrushes and wipes. At the same time, it insists on developing its own brands and continuously improving its competitiveness through epitaxial mergers and acquisitions, etc., to make up for shortcomings. We adjusted our previous profit forecast. The company's revenue for 24-25 was adjusted from 1.39 billion yuan and 1.68 billion yuan to 1,291 billion yuan and 1,556 billion yuan respectively. The estimated revenue for 26 was 1,872 billion yuan, EPS was adjusted from 1.39 and 1.70 yuan to 1.55 and 1.88 yuan respectively, and the estimated EPS for '26 was 2.27 yuan, based on the closing price of 22.77 yuan/share on April 24, 2024. The corresponding PE is 15 times, 12 times, and 10 times, respectively, maintaining the purchase rating.

Risk warning

Risk of price fluctuations of major raw materials, risk of market competition, risk of exchange rate fluctuations, risk of private brand development falling short of expectations.