Matters:
The company released the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved revenue/net profit without return to mother of 10.8/0.2 billion yuan, YoY -8.8% /year-on-year loss/year-on-year loss; 24Q1 achieved revenue/net profit/net profit without return to mother of 2.8/0.2 billion yuan, and YoY -11.2%/+65.2%/+85.8%.
Commentary:
Private brands are growing steadily. The omni-channel construction has been further completed. 1) By product, baby care products achieved revenue of 389 million yuan (YOY -26.2%), gross margin of 18.28% (YO+5.67pct); adult care products achieved revenue of 565 million yuan (YOY +5.5%), gross margin of 16.03% (YOY+3.28pct); pet care products achieved revenue of 89 million yuan (YOY -7.68%), gross margin of 19.52% (YOY+15.65 pct). By model, private brands achieved revenue of 491 million yuan (YOY +10.1%), gross margin of 16.58% (YOY+1.99 pct); ODM achieved revenue of 561 million yuan (YOY -21.8%), gross margin of 17.33% (YOY+7.14pct); other channels achieved revenue of 29 million yuan (YOY +31.6%), and gross margin of 41.87% (YOY-35.21pct). 2) In 24Q1, the company's own brands continued to increase their market share and maintain steady overall development; the expected growth rate of ODM business was still under pressure, dragging down -11.2% of revenue compared to the same period last year.
Cost improvements drive profit recovery, and continue to promote cost reduction and efficiency. 1) In '23, the company achieved a gross profit margin of 17.7%, +4.6pct year-on-year, or mainly due to a drop in raw material costs leading to an increase in gross margin. On the cost side, the sales/management/finance expense ratios were 9.2%/3.3%/-2.6%, respectively, compared to +1.2/+0.8/+0.6pct. The increase in sales expense ratios is mainly due to companies increasing brand and marketing investment and promoting omni-channel layout. Taken together, the company achieved a net interest rate of 1.9% to mother, turning a year-on-year loss into a profit. 2) In 24Q1, the company achieved a gross profit margin of 20.4%, +3.8pct/month-on-month, and 8.2%/3.1%/-3.0% on the expense side, and +1.6/+1.1/-2.6pct, respectively. The comprehensive driving net profit margin was +3.0 pct to 6.5 pct. Looking ahead to 24, the raw material manufacturing companies in which the company participated began operations in December 23, which is expected to reduce the company's procurement costs; at the same time, as the company's smart factory projects are put into operation one after another, cost reduction and efficiency will be reduced or further contributed to profit flexibility.
Leading adult incontinence care provider, accelerating omni-channel expansion. The company adheres to ODM+ independent brand two-wheel drive, and the revenue share of adult care products continues to increase. On the channel side, the company will strengthen complementary online and offline development. Online channels will inject more brand promotion and differentiated products to further consolidate the company's leading edge in online channels; offline channels will actively expand the development of key channels such as stores around hospitals, OTC, nursing homes, special communication channels, and government procurement. At the same time, the company plans to establish an overseas division to further strengthen the company's international expansion capabilities. We continue to be optimistic about the increase in the penetration rate of the company's adult care products. We expect to achieve net profit of 0.45/0.58 billion yuan from 2024 to 2026, respectively, corresponding to the current PE price of 55/42/32X; referring to the absolute valuation method, we will give a target price of 11.1 yuan/share to maintain the “recommended” rating.
Risk warning: Online growth falls short of expectations, baby care business recovery falls short of expectations, and industry competition intensifies.