Key points of investment:
In early April, 52% of the shares of Shanenkang, a probiotic brand, were consolidated; Shanenkang has fully benefited from domestic substitution of probiotic ingredients and is growing well. Shanenkang specializes in probiotic raw material bacterial powder+ midstream OEM, with revenue of 62.97 million yuan and net profit of 9.1 million yuan in 2022. The global probiotic industry is growing steadily. According to data from the international market research agency Markets and Markets, the global probiotics market is expected to be US$61.1 billion in 2021, with a compound growth rate of 8.3% in 2021-2026. The upstream part of the industrial chain is the highest barrier. The core is R&D capability, and domestic manufacturers are breaking through the foreign oligopoly. Shanenkang's strain has the highest yield in domestic investment, strong industrialization capacity, smooth growth logic: 1) R&D strength: Sunenkang has 36 invention patents, published 28 SCI academic papers, and carried out 13 clinical trials at the same time to provide support for efficacy verification and industrialization; 2) Industrialization capacity: Currently, there are more than 7,000 in-house strains, and the strain yield is superior to other domestic investors. The number of industrialized strains has reached more than 30, and is at the forefront of domestic investment. It is expected that in 2024, more than 10 new industrialized strains will be added; Starting at scale, profit margins are expected to be excellent Transformation; 3) Production capacity expansion: 2 freeze-dryers were added in November 2023, and the production capacity of bacteria powder gradually reached 40 tons/year in 2024, which is already at the upper level of the industry; 4) The sales team added: Focus on expanding lower back customers. Large downstream customers mainly intervene in the form of OEM to help industrialize them through fermentation processes; supplement sales team leaders to accelerate the expansion of new customers. From a valuation perspective, the marketing target of probiotics is 34 times that of Keto Biotech 2024PE, while Pejiajie's 2024 PE was only 15 times higher. It is expected to contribute to valuation flexibility after merging with Shinekang.
Orders for the main foundry business improved marginally, providing a basic market. For the first time in the company's annual report, the main business revenue in 2024 was 20% compared to the same period.
In the short term, toothbrush orders continued to improve after August 2023, and the trend of revenue recovery was confirmed. In the medium to long term, the company relies on supply chain efficiency+production and operation profit control+design and R&D capabilities, the gross margin of OEM is high and stable, providing a stable basic market.
Subsequent growth comes from: 1) Toothbrushes: Increased share of high-quality domestic brand customers such as Yunnan Baiyao, Cold Acid, and Shuke terminals+supplementing the middle- and low-end product line+expanding new high-quality customers, such as Lion King; 2) Wipes:
In 2023, the high base of disinfectant wipes was basically digested. Customers and orders for consumer wipes were relatively stable, and the growth rate was fixed; 3) Other oral care: more effective, lower penetration rate, higher concentration on a single track. The company took the lead in binding major customers, occupied the main OEM share, and shared the dividends of racetrack growth! At present, new big products such as dental floss sticks and dental floss have been incubated. With the introduction of major customers, the toothpaste business is expected to be the first year of sales in 2024!
Lay out endogenous and extrinsic brands to open up room for growth. In 2020, the company raised its own brand to a strategic level, focusing on e-commerce channels, and launched a popular online category in 2022. In 2023, the team was re-formed in Hangzhou to complete the product line. The e-commerce channel prioritized the focus on breaking through toothbrush products, and the results are already beginning to show. The acquisition of 32% of the shares of dental care brand Weimizi, and its brand and channel resources are an important support for the company's independent brand development.
The target for high-quality foundry in the oral care circuit. Major customers are in the corner overtaking window for high-quality domestic brands. Stock customers expand their product lines to provide subsequent increases; share track dividends for new categories of oral care, and incubate new major products. Focus on outreach mergers and acquisitions in the health sector to open up room for growth! We maintain the 2024-2026 net profit forecast of 1.54/2.07/255 million yuan, 66.5%/34.5%/23.2% year-on-year, respectively. The current market value corresponds to PE of 15/11/9 times, maintaining the “buy” rating!
Risk warning: Overseas demand falls short of expectations, raw materials fluctuate beyond expectations, and the profit pace of independent brands falls short of expectations.