Matters:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue/net profit without return to mother of 81.9/5.8/410 million yuan, YoY -27.9%/-64.8%/-73.6%; 24Q1 achieved revenue/net profit to mother/net profit of 19.1/1.8/140 million yuan, YoY -18.8%/-51.6%/-53.5%.
Commentary:
Medical consumables: Infection protection products are under pressure, and conventional medical products are growing steadily. 1) 2023: The medical consumables business achieved revenue of 3.86 billion yuan in 23 years, or -46.7% year-on-year. By category, demand for infection protection products dropped drastically in 23 years, with high market inventories and revenue falling 80.7% to 901 billion yuan; the conventional medical consumables business grew steadily, with revenue +17.3% YoY to 2.95 billion yuan. Among them, traditional dressing/high-end dressing/operating room consumables were +7.0%/+27.7%/+17.7%, respectively, while categories such as surgical kits, film applications, oral and nasal cavity, and incontinence care grew more than 35% year over year. By channel, the company's BC channel expansion had remarkable results. By the end of '23, the company covered more than 6,000 medical institutions and 190,000 OTC pharmacies (with more than 40,000 new ones added in '23). Core products ranked first on the Amazon platform. Overseas channels/hospital channels/e-commerce and domestic pharmacies accounted for 37.5%/23.7%/24.7% of revenue, respectively. 2) 24Q1: Medical consumables achieved revenue of 860 million yuan in the first quarter, or -37.3% year-on-year. Among them, revenue from infection protection products/conventional medical consumables was -87.6%/+4.3%, respectively, or mainly driven by a high base for the same period. In terms of channels, foreign sales channels maintained relatively rapid growth, with revenue +21.3% year-on-year to 380 million yuan.
Healthy lifestyle consumer goods: Implementing the explosive product strategy, high-quality growth in the cotton era. 1) 2023: The cotton era focused on three major scenarios, implemented explosion-product strategies, and achieved annual revenue of 4.26 billion yuan, +6.4% over the same period last year. Among them, wet and dry cotton towels/sanitary napkins/adult clothes/other woven products achieved revenue of 11.9/5.9/8.4 billion yuan respectively, +2.8%/+4.2%/+21.7%/+17.1% compared with the same period last year. In terms of channel layout, the company actively accelerated the opening of stores offline, with a net increase of 71 stores to 411 in '23, with a single store efficiency of about +15%; online and supermarket channels were steady, moderate and positive, with revenue of +1.2%/+4.3% year-on-year, respectively, to 2,58/ 240 million yuan. 2) 24Q1: Consumer goods business revenue maintained steady growth, with revenue of +7.1% to 1.04 billion yuan; the development of all categories continued to improve, and the core explosive dry and wet cotton towels achieved revenue of 270 million yuan, an increase of 20.0% over the previous year.
Reducing costs and increasing efficiency improved profits, and the impact on the base figure gradually disappeared after Q2. 1) 2023: The company achieved a gross profit margin of 49.0%, +1.6pct compared to the previous year, or mainly due to cost reduction and efficiency increase to increase the gross margin of consumer goods. On the cost side, the company currently has a sales/management/finance expense ratio of 25.5%/8.5%/-0.8%, +7.5/+2.9/+0.3 pct. Among them, the increase in the sales expense ratio is mainly due to the company increasing its promotion efforts in the cotton era, and the company's net profit margin to mother is -7.4 pct to 7.1% year on year. 2) 24Q1: The company achieved a gross profit margin of 47.6%, -3.3 pct/month-on-month +1.9 pct, or the decline in sales of infection protection products with mainly high gross margins dragged down profits. On the expense side, the company achieved a year-on-year sales/management/finance expense ratio of +5.0/+1.6/-0.02pct to 25.0%/8.0%/-0.8%, respectively.
Investment suggestions: The company expanded its medical consumables product line through epitaxial mergers and acquisitions and successfully broke through business boundaries; consumer goods focused on explosives, continuously promoted cost reduction and efficiency, and improved profitability trends. Given that future demand is still uncertain, we expect the company's net profit to be 8.3/9.5/1.11 billion yuan in 24-26 (the value was 16.9/1.98 billion yuan 24-25 years ago), corresponding PE 21/19/16 times. Referring to the absolute valuation method, a target price of 37.4 yuan was given, and the “strong recommendation” rating was maintained.
Risk warning: The recovery of the consumer sector fell short of expectations, and the recovery in consumer confidence was blocked in the macro environment, etc.