Incident Overview

The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved revenue of 1,376 billion yuan, +4.76% year over year; net profit to mother was 141 million yuan, +4.97% year over year; net profit after deduction was 106 million yuan, +1.56% year over year. The net cash flow from the company's operating activities was $151 million, +80.55% year-on-year. Looking at a single quarter, 2023Q4 achieved revenue of 365 million yuan, +8.16% year over year; realized net profit of 34 million yuan, +16.82% year over year, net profit after deduction of 0.2 billion yuan. 2024Q1 achieved revenue of 361 million yuan, +5.22% year over year; net profit of 0.37 million yuan, +15.60% year on year; net profit after deduction of 0.28 million yuan, -0.38% year on year; in addition, the company plans to distribute a cash dividend of 6.50 yuan for every 10 shares to all shareholders, totaling 112 million yuan in cash. The dividend ratio is 79.20%.

Analytical judgment:

Revenue side: Buck the trend and outperform the industry's growth rate, and the large oral health category ushered in acceleration due to a slow recovery in offline retail market demand. According to Nielsen data, the sales scale of the domestic toothpaste market fell 4.56% to 29.894 billion yuan in 2023. The company concentrated on Gubentuo and outperformed the industry's growth rate, with revenue +4.76% YoY to 1.376 billion yuan; in addition, domestic brands are using strategies such as continuously upgrading product structures, continuing to focus on sales channels, and responding quickly to market changes. According to Euromonitor data, the market share of the entire dental care industry is CR10 In 2022, it increased by 27.7% to 28.6%; according to Nielsen data, local brands account for more than 40% of the market share of the top ten offline toothpaste brands, and the leading effect of domestic brands is gradually showing. By channel, the company vigorously expands emerging channels, new retail channels and e-commerce businesses, continues to cultivate distribution channels, and optimize the KA channel to help achieve sustainable sales revenue growth. Among them, the company's toothpaste offline sales market share is 8.04%, ranking fourth in the industry (the core toothpaste brand “Cold Acidol” ranks first in the offline retail market share in the anti-sensitive segment all year round, at 64.10% in 2023, leading the segment); the online business has fully launched a high-quality development model to improve quality and efficiency, and the center's e-commerce profitability continues to increase. Percentage Continued improvement, new retail grew rapidly, and became the leading brand in the industry (e-commerce revenue +14.47% YoY to 316 million yuan in 2023).

By product, the company's adult toothpaste, adult toothbrushes, children's toothpaste, children's toothbrushes, electric toothbrushes, dental care and beauty care products achieved revenue of 1,074 billion yuan, 155 million yuan, 73 million yuan, 32 million yuan, 0.12 million yuan, and 28 million yuan respectively, +2.00%, 14.75%, 0.62%, 20.79%, 129.48%, and 47.59%. The company vigorously expanded new dental categories such as mouthwash, dental floss, electric toothbrushes, and dental care products. The health category is picking up speed.

Profit side: The gross margin increased significantly. The cost ratio increased during the period. In terms of profitability, the company's gross margin increased by 3.60 pcts year on year to 44.11% year on year, of which Q4 gross margin increased 6.03 pct year on year to 43.89%. We expect this is mainly due to the company's product structure upgrades and adjustments, and the share of high-margin products increased. In terms of expenses, the company's expense ratio in 2023 was 34.82%, +4.36pct; of these, the sales expense ratio was 28.08%, +4.07pct; the management expense ratio was 4.86%, +0.73pct; the financial expense ratio was -1.23%, -0.49pct year on year (mainly due to the increase in interest income from the capital protected cash management business in the current period); the R&D expense ratio was slightly +0.05pct to 3.11% year over year. Net profit margin increased 0.02pct year over year to 10.27%.

In Q1 2024, the company's gross margin increased by 7.17 pct to 48.43% year on year, and net margin increased 0.93 pct year on year to 10.35%. The company's expense ratio for the first quarter of 2024 was 38.19%, +8.44pct year on year; of these, the sales expense ratio was 31.74%, +8.69pct year on year (mainly due to the increase in e-commerce revenue in the current period); the management fee rate was 3.80%, -0.30pct year on year; the financial expense ratio was -0.98%, -0.47pct year on year (mainly due to the increase in current term deposits and simultaneous increase in interest income); the R&D expense ratio was 3.62%, +0.53 pct year on year.

Investment advice

From an industry perspective, the company is in the Chinese oral cleaning and care market, which has a huge consumer base and huge potential for future growth, and has broad prospects for development. At the same time, the company occupies the first place in the offline market in the anti-sensitive segment all year round. In the future, it is expected to follow the further increase in the future penetration rate in the anti-sensitive segment and enjoy priority industry development dividends. From the company's perspective: The company improves quality and efficiency through collaborative development through online and offline channels. We are optimistic that the company's future revenue capacity will remain strong; the company actively lays out the high-end market and strengthens dental care and dental beauty, laying a favorable foundation for the company to enter the dental health industry in the future, and the future can be expected. Due to the slow recovery in offline demand in the industry, we adjusted our previous profit forecast, adjusted the company's 2024-2025 revenue from 1,722/2,051 billion yuan to 15.39/1,844 billion yuan, adjusted EPS from 1.02/1.25 yuan to 0.92/1.11 yuan, and added 2026 revenue and EPS of 2,182 million yuan and 1.34 yuan, corresponding to the closing price of 22.09 yuan/share on April 26, 2024. PE was 22.09 yuan/share, respectively, maintaining a “buy” rating.

Risk warning

1) Industry competition is intensifying; 2) Channel promotion falls short of expectations; 3) The marketing model is not recognized by the market.