Investment advice: Considering that the company needs to increase marketing investment to develop online business, lower the 2024-25 EPS forecast to 0.95 (-0.13) and 1.07 (-0.20) yuan, add 1.19 yuan to the 26-year forecast, refer to the comparable company's 32xPE for 24, lower the target price to 30.4 yuan, and maintain the increase rating.

Performance grew steadily, and gross margin increased significantly. In 2023, the company's revenue/attribution/deduction of non-net profit was 1,376/1.41/106 million yuan, +5%/+2% year-on-year, as the overall contraction of offline channels slowed down. In 2023, the company's gross profit margin was 44.1%, +3.6pct year on year, mainly due to product and channel structure optimization. Among them, e-commerce gross margin increased 10.4 pct; sales/management/R&D rates increased by +4.1/+0.8/+0.1pct to 28.1%/8.0%/3.1% year over year. The increase in sales rate was mainly due to increased investment in promotion and advertising; net profit margin to mother was 10.3%, which remained stable year on year.

The company's net cash flow from operating activities in 2023 was 150 million yuan, +81% year over year. 24Q1's revenue/attribution/deduction of non-net profit of 361/0.37/0.28 billion yuan, compared with +5%/+16%/-0.4%. Profit slightly exceeded expectations. 24Q1 gross margin increased 7.2 pcts to 48.4%, a record high.

Extended categories performed well, and e-commerce channels grew rapidly. By product, in 2023, the company's revenue for adult toothpaste/adult toothbrush/children's toothbrush/children's toothbrush/electric toothbrush/oral medical and beauty care products was 10.74/1.55/0.73/0.32/0.12/0.28 billion yuan, compared with +2%/+15%/+1%/+21%/+129%/+48%. Traditional categories grew steadily, extending the impressive growth rate of new categories. By channel, the revenue of the company's distribution/direct supply/e-commerce channels in 2023 was 995/0.54 /316 million yuan respectively, +2%/+0%/+14% over the same period last year, and the share of e-commerce increased to 23%.

E-commerce channels and emerging categories have great potential for development, which is expected to accelerate growth. The company's e-commerce penetration rate is rapidly improving, and new categories are gaining momentum, which is expected to drive accelerated revenue and profit growth.

Risk warning: Industry sentiment is declining, brand incubation falls short of expectations, and expansion of emerging channels is limited.