The leading effect of toothpaste brands is prominent, and Dengkang's share has continued to grow over the past 3 years

Among oral care products, toothpaste is the largest category. According to Nielsen data, China's toothpaste market is relatively concentrated. In 2023, the top ten toothpaste product manufacturers had an offline market share of 80.58%, and the top four manufacturers such as Dengkang had a market share of 60.18%. The head effect is becoming more and more remarkable. Among them, the share of leading local companies such as Yunnan Baiyao and Dengkang Dental grew much higher than foreign investment; in the past 3 years, Dengkang grew significantly among the top 5 toothpaste manufacturers.

The implementation of the new regulations will accelerate the development of the anti-sensitive sector market. In terms of product efficacy, gum care, whitening, and anti-sensitive toothpaste are the main categories purchased by consumers, with offline shares accounting for 28.5%, 23.6%, and 11.7% respectively in 2023. The market share of whitening and anti-cavities toothpaste continued to shrink in 2021-23, and the overall market share of anti-sensitive toothpaste showed an upward trend and continued to grow in importance; the company's core brand “Cold Acid” occupied a leading position in the anti-sensitivity segment for many years.

Accelerate the breakthrough of all channels across the region, improve marketing quality and efficiency

A high-quality development model to improve quality and efficiency has been fully launched online. The profitability of central e-commerce continues to increase, and the share of interested e-commerce businesses continues to increase; new retail has grown rapidly and has become the leading brand in the industry. In deep distribution channels, the company forms a two-level channel management system through distributors and creates a county development and operation model; in KA, it establishes a professional retail management model and combines new retail development to form an integrated online and offline marketing channel operation system; in e-commerce, it uses the two major platforms of central e-commerce and interest e-commerce to build an e-commerce product matrix guided by “top-level design, strategic development, and fine implementation”. Through refined operation and deep integration of platform resources, user asset pool accumulation, accurate C-end user operation, and effective connection of “people to the warehouse” are achieved through user accumulation and marketing transformation, forming a second growth curve.

The new oral health business is growing rapidly

The company is actively investing in and developing the electric oral care product market. It has successively launched electric dental products such as “Dengkang,” “Cold Acid,” and “Bellerol” electric toothbrushes and dental irrigators to provide consumers with a wider range of oral care options. At the same time, the company has gradually enriched fine molecule categories such as dental desensitizers, oral antiseptic creams, dental floss sticks, orthodontic toothbrush, orthodontic holder cleaning tablets, etc. The company's main business expanded rapidly from basic oral cleaning to the fields of dental care and oral beauty care. The operating revenue of dental care and beauty care products increased 47.59% year-on-year in 2023, laying a solid foundation for full entry into the oral health industry.

Maintain profit forecasts and maintain “increase holdings” ratings

The company has made structural improvements in the three areas of diversification of product categories, diversification of product functions, and improvement of product value. (1) Enhance product value and enhance brand profitability. Driven by both technology and marketing, product innovation has been recognized by more users, and the company has strengthened its efforts and promotion of high-end products. (2) In addition to toothpaste and toothbrush categories, various categories such as electric toothbrushes and mouthwash continue to be cultivated to provide users with richer oral care choices. The company provides users with comprehensive solutions for oral care, which helps to further improve market competitiveness. We estimate that the company's net profit for 24-26 will be 1.6/1.9/220 million yuan, EPS will be 0.93/1.1/1.3 yuan/share, respectively, and the corresponding PE will be 27/23/19x, respectively.

Risk warning: increased market competition; fluctuating raw material prices; R&D and new product development; accounts receivable management risks, etc.