Incidents:
The company released its 2023 annual report, and realized revenue/net profit to mother in 2023 was 9.80/330 million yuan respectively, +14.4%/-4.9% year on year; 4Q2023 realized revenue/net profit to mother was 2,98/170 million yuan, respectively, +21.3%/+121.7% year on year; and 1Q2024 realized revenue/net profit to mother was 1,85/10 billion yuan, respectively, -10.4%/+6.8% year on year.
Comment:
Category structure optimization+new channel expansion, and revenue reached a record high: in 2023, by category, the company's household paper/personal care achieved revenue of 96.6/140 million yuan, +14.2%/+31.9%, respectively. The revenue share was 98.6%/1.4%, respectively, and the revenue share changed by -0.2/+0.2pcts respectively. By sales model, the traditional model and the non-traditional model achieved revenue of 44.1/5.39 billion yuan respectively, +3.8%/+24.8% compared to the same period. The revenue share was 45.0%/55.0%, respectively, and the revenue share changed by -4.6/+4.6pcts respectively.
On the product side, the company continued to optimize the category structure, and the share of sales of high-end and high-margin products increased. Among them, the revenue growth rate of the high-end series of household paper was over 20%, accounting for about 25% of the household paper business, and the revenue growth rate of the high-margin category reached 16%, accounting for about 68% of the household paper business. On the channel side, the company actively explores the sinking market, increasing resource investment in e-commerce and new retail platforms, and actively exploring emerging channels such as in-house purchase applets, confinement club cooperation, and fitness center cooperation. The company's share of non-traditional channel sales increased further in 2023.
Benefiting from falling pulp prices and product structure upgrades, profitability increased year-on-year in 2023: in 2023, the company's gross margin was 33.2%, +1.2pcts year over year. According to data from Zhuochuang Information, the average price of a ton of broadleaf pulp in 2023 was 5004 yuan, down 1,336 yuan from the previous year, and the average price of a ton of household paper was 6,727 yuan, down 788 yuan; in 2023, the company's sales price/cost per box of household paper was 64.8/43.4 yuan, respectively, +0.2%/-0.7% year-on-year, respectively. Therefore, the main reason for the year-on-year increase in the company's gross margin in 2023 is that while the cost of wood pulp has decreased, benefiting from the upgrading of the product structure, the average sales price of the company's household paper has bucked the trend.
The company's expense ratio for the 2023 period was 29.2%, +2.5pcts. Among them, the sales/management/R&D/finance expenses rates were 22.5%/4.4%/2.7%/-0.3%, respectively, and remained flat at +2.1pcts// +0.4pcs/ respectively. Among them, the main reason for the increase in sales expenses was due to the increase in product promotion fees and advertising expenses.
1Q2024, the company's gross margin was 34.5%, +7.1pcts year-on-year, and -5.4pcts month-on-month. According to Zhuochuang News data, the average domestic broadleaf pulp ton price in 4Q2023/1Q2024 was 5309/5184 yuan, down 1343/716 yuan from the previous year, 1Q2024 -126 yuan; 4Q2023/1Q2024 household paper ton average price was 6552/6475 yuan, down 1565/1252 yuan year on year, and 1Q2024 -77 yuan month-on-month. We believe that the year-on-year increase in the company's gross margin in the first quarter mainly benefited from the low-cost wood pulp inventory in the first quarter; in addition, 1Q2024's inventory was 1.51 billion yuan, an increase of 185 million yuan compared to the end of 2023. Although the month-on-month decline in the average price of broadleaf pulp in the first quarter of this year exceeded that of household paper, relatively high-priced wood pulp purchased in the fourth quarter of last year may be stored in the first quarter of this year, increasing the inventory cost of wood pulp, leading to a month-on-month decline in gross margin in the first quarter of 2024.
The cost rate for the 1Q2024 period was 29.8%, +7.2pcts, with sales/management/R&D/finance expenses ratios of 20.5%/5.7%/3.5%/0.1%, respectively, and +3.8/+2.2/+1.0/+0.3 pcts year over year.
Supply and demand for household paper increased in 2024, and competition in the industry was relatively intense: as an essential consumer product, downstream demand grew steadily. Considering that 37 companies in the household paper industry put into operation new paper machines in 2023, with a total installed capacity of 1.77 million tons, this part of production capacity will continue to be released in 2024, and the competitive pressure on the industry will still be strong due to the increase in supply and demand. We believe that in the upward cycle of pulp prices, leading companies with refined cost control and high-end product R&D and production capabilities are expected to further expand their competitive advantage.
The leading household paper company maintains an “increase in holdings” rating: We basically maintained the 2024-2025 revenue forecast, and added a 2026 revenue forecast of 13.06 billion yuan. Considering that pulp prices will enter an upward channel in the future, and the level of competition in the domestic household paper industry has exceeded expectations, we have lowered the 2024-2025 net profit forecast to 35/380 million yuan (5.1%/13.7%, respectively), and added a net profit forecast for 2026 to the mother of 400 million yuan. The corresponding PE price for the current stock price is 32/30/ 28 times The company is a leading domestic household paper company and maintains a “gain” rating.
Risk warning: The level of competition in the industry has exceeded expectations, and the rise in pulp prices has exceeded expectations.