Performance summary: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 1.38 billion yuan, +4.8% year on year; realized net profit of 140 million yuan, +5% year on year; realized deducted non-net profit of 110 million yuan, +1.6% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 360 million yuan, +8.2% year on year; realized net profit of 0.3 billion yuan, +16.8% year over year; realized net profit of 20 million yuan after deduction, which was the same as year on year. 2024Q1 achieved revenue of 360 million yuan, +5.2% year on year; realized net profit of 40 million yuan, +15.6% year on year; realized net profit of 30 million yuan after deduction, -0.4% year on year. Revenue has maintained steady growth, and market share has steadily increased.

Gross margin increased rapidly, and marketing expenses remained high. In 2023, the company's overall gross margin was 44.1%, +3.6pp year on year; 2023Q4 gross margin was 43.9%, +6pp year on year. Thanks to product structure optimization, overall gross margin increased rapidly. By product, the gross margin of adult toothpaste products is 45.0% (+4.0pp); the gross margin of adult toothbrushes is 34.0% (+3.6pp). By region, the gross margin of the east/southern/western region/northern region was 40.6% (+1.2pp)/43.6% (+3.6pp)/49.5% (+3.3pp)/41.5% (+2.9pp), respectively; e-commerce channel gross margin was 45.9%, +10.4pp. In terms of cost ratio, the company's total cost ratio was 34.8%, +4.4pp year on year, of which sales expenses rate was 28.1%, +4.1pp year on year, mainly due to increased investment in product promotion and promotion expenses; management expenses ratio was 4.9%, +0.7pp year on year; financial expenses ratio was -1.2%, -0.5pp year on year; R&D expenses rate was 3.1%, the same year on year. Taken together, the company's net interest rate was 10.3%, the same as the previous year. Furthermore, the company's net operating cash flow in 2023 was $150 million, +80.6% year-on-year, with abundant cash flow. The gross margin of the 2024Q1 company was 48.4%, +7.2pp; the total expense ratio was 38.2%, +8.4pp, mainly due to the increase in sales expenses due to e-commerce channel marketing expenses. Among them, the sales/management/finance/R&D expenses ratio was +8.7pp/-0.3pp/-0.5pp/+0.5pp, respectively; the net interest rate for 2024Q1 was 10.3%, +0.9pp year on year.

The toothbrush category is growing rapidly, and the share of toothpaste continues to expand. By product, in 2023, the company's revenue for adult toothpaste/adult toothbrush/children's toothbrush/children's toothbrush was 1.07 billion yuan (+2% YoY)/160 million yuan (+14.8% YoY)/0.7 billion yuan (YoY +0.6%)/0.3 billion yuan (YoY +20.8%). The share of toothpaste products has maintained steady growth. According to Nielsen data quoted in the company's annual report, the cold sour cream brand's offline channel market share in the toothpaste category reached 8% in 2023, an increase of about 1.1 pp over 2022, ranking fourth in the industry and second among local brands. The company's toothbrush products are growing rapidly. According to Nielsen data, the cold acid brand toothbrush is the brand with the highest year-on-year sales increase among the top ten brands in the offline retail market in 2023. The share of retail sales in the offline market increased to 5.3%, ranking fourth in the industry and third among local brands. In 2023, electric toothbrush products/dental care and beauty care products achieved revenue of 0.1 billion yuan (+129.5%)/0.3 billion yuan (YoY +47.6%) respectively. The new categories maintained high growth, and the product matrix was further enriched.

Online channels are growing rapidly, and we are deeply involved in the lean improvement of offline outlets. By channel, the company's offline channel revenue in 2023 was 1 billion yuan, +0.8% year over year. Among them, the east/southern/western region/northern region achieved revenue of 230 million yuan (-0.1% year over year)/260 million yuan (+ 4.9% year over year)/290 million yuan (-2.0% year over year)/220 million yuan (+1.0% year over year), and the offline channel market position is stable. In 2023, e-commerce channel revenue was 320 million yuan (+14.5% year-on-year), and e-commerce channels maintained a relatively rapid growth trend. Among them, the profitability of e-commerce centers such as Tmall continued to increase, and the share of e-commerce interests such as Douyin continued to increase. On the offline side, the revenue of the distribution model/direct supply model was 1.0 billion yuan (+2.1%)/50 billion yuan (+0.1% year over year), respectively. The company covered hundreds of thousands of retail terminals through distributors distributed in 31 provinces, autonomous regions, municipalities directly under the Central Government and more than 2,000 districts/counties across the country, and achieved extensive and in-depth distribution with a unique county development model to promote continuous sales growth.

Profit forecasting and investment advice. EPS is expected to be 0.94 yuan, 1.13 yuan, and 1.33 yuan respectively in 2024-2026, corresponding PE is 25 times, 21 times, and 18 times, respectively. Considering the company's prominent brand barriers, the market share has steadily increased, and the “hold” rating has been maintained.

Risk warning: the risk of large fluctuations in raw material prices, the risk of channel expansion falling short of expectations, and the risk of increased market competition.