Performance summary: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 9.8 billion yuan, +14.4% year on year; realized net profit of 330 million yuan, -4.9% year on year; realized deducted non-net profit of 300 million yuan, -6.5% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 2.98 billion yuan, +21.3% year on year; realized net profit of 170 million yuan, +121.7% year on year; realized net profit of 160 million yuan after deduction, +125.2% year on year. The company's revenue grew steadily throughout 2023, and profitability improved quarterly. 2024Q1 achieved revenue of 1.85 billion yuan, -10.5% year on year; realized net profit of 100 million yuan, +6.7% year over year; realized net profit of 90 million yuan after deduction, +7.9% year on year.
Gross margin improved markedly, and investment continued to be widely advertised. In 2023, the company's overall gross margin was 33.2%, +1.2pp; 2023Q4 gross margin was 39.9%, +9.4pp. Benefiting from the decline in prices of raw materials such as wood pulp in 2023 and the company's continuous optimization of the category structure, the share of high-margin non-traditional dry towels and personal care products continued to increase, and gross margin rebounded quarterly throughout the year. By product, the gross margin of tissue paper/personal care products in 2023 was 33.0% (+2.0pp)/45.8% (-4.7pp), respectively. In terms of cost ratio, the company's total expense ratio in 2023 was 29.2%, +2.5pp year on year, mainly affected by the increase in sales expense ratio. Among them, sales expense rate/management expense rate/financial cost rate/R&D expense ratio were 22.5%/4.4%/-0.3%/2.7%, respectively, +2.1pp/pp/+0.4pp. The increase in sales expenses was mainly due to increased investment in product promotion and advertising expenses. Taken together, the company's net interest rate was 3.4%, -0.7pp year on year; 2023Q4 net interest rate was 5.6%, +2.5pp year on year. The company's net operating cash flow in 2023 was $1.24 billion, +217.1% year over year. Cash flow improved significantly. The gross margin of 2024Q1 was 34.5%, +7.1pp; the 24Q1 total cost ratio was 29.8%, +7.2pp. Among them, sales/management/ financial/ R&D expenses were +3.8pp/+0.3pp/+1pp, respectively. The company continued to publicize the launch. In addition, rental warehouse expenses and equity incentive expenses increased, and sales and management expenses increased; the net margin of 2024Q1 was 5.2%, +0.8pp year over year.
The tissue product structure continues to be optimized, and revenue from personal care products is growing rapidly. By product, household paper revenue in 2023 was 9.66 billion yuan (+14.2% YoY)/
Personal care revenue of 140 million yuan (+31.9% YoY).
1) In terms of household paper, the company achieved rapid revenue growth by improving the layout of the high-end market, upgrading and iterating existing products, and digging deeper into small category opportunities. Among them, the high-end series grew by more than 20%, accounting for about 25% of the household paper business; the high-margin category grew by 16%, accounting for about 68% of the household paper business, effectively improving the company's profit level. 2) The health boutique business focuses on building specialty products, with annual sales accounting for about 5% of total revenue, of which the wet wipe business accounts for about 3% of total revenue; the soft towel business accounts for about 1% of total revenue; 3) The nursing products business opens up online and offline channels, focuses on key activity schedules to carry out brand promotion activities, and actively expand the campus market to enhance brand awareness and attract and cultivate new customer groups. Annual sales account for about 1% of total revenue.
Traditional channels are growing steadily, while non-traditional channels continue to gain strength. By channel, 1) The revenue from traditional models such as distribution, KA, and commercial sales was 4.41 billion yuan (+3.8%), accounting for 45% of revenue. The company achieved deep distribution through continuous optimization of organizational management, focusing on dealer development and scale; the KA channel adjusted the customer structure and focused on improving the efficiency and efficiency of resource investment to achieve steady growth in traditional channels. 2) Non-traditional models such as e-commerce and new retail have revenue of 5.39 billion yuan (+24.8%), accounting for 55.0% of revenue. The company has adapted to consumption upgrades and changing consumption scenarios, increased resource investment in e-commerce and new retail platforms, strengthened daily operation management, and further increased the company's share of non-traditional channel sales. In addition, the company integrates resources to explore and innovate, and actively expand new markets and channels, such as internal purchase applets, cooperation with confinement clubs and fitness centers, etc., to open up a new track for the company's business development.
Profit forecasting and investment advice. EPS is expected to be 0.30 yuan, 0.37 yuan, and 0.43 yuan respectively in 2024-2026, corresponding PE is 29 times, 24 times, and 21 times, respectively. Maintaining a “buy” rating in view of the continuous upgrading of the company's product structure and improvement in profitability.
Risk warning: risk of large fluctuations in raw material prices; risk of large fluctuations in paper prices; risk of new production capacity falling short of expectations; risk of exchange rate fluctuations.