Description of the event

The company achieved revenue, net profit attributable to mother, and net profit excluding net profit of 19.09, 1.82, and 144 million yuan in Q1, a year-on-year decrease of 18.8%, 51.6%, and 53.5%.

Incident comments

Revenue: Business performance is divided, and consumer goods are growing steadily. 1) Medical consumables business: Achieved revenue of 860 million yuan, a year-on-year decrease of 37.3%. The large decline was mainly due to the high base figure due to the high volume and price increase of masks and other products in 2023Q1. Among them, infection protection products were -87.6% year over year to 80 million yuan as the main drag. In addition, revenue from conventional medical consumables products was 780 million yuan, up 4.3% year on year; revenue from high-end wound dressing products was 180 million yuan, up 33.9% year on year. By channel, foreign sales channels achieved revenue of 380 million yuan, an increase of 21.3% over the previous year; the rest of the channels were affected by the high base of infection protection products in the same period last year, and all declined to varying degrees. 2) Consumer goods for healthy living: achieved revenue of 1.04 billion yuan, an increase of 7.1% over the previous year.

Among them, non-woven consumer goods achieved revenue of 550 million yuan, an increase of 10.0% year on year; the core explosives achieved revenue of 270 million yuan, an increase of 20.0% year on year; non-woven consumer goods achieved revenue of 490 million yuan, an increase of 4.0% year on year, lower than the high base figure expected from non-woven consumer release in 2023Q1. By channel, e-commerce and offline stores are developing steadily.

Profitability: Declining gross margins and increased expense ratios are driving down profit performance. The overall gross margin was -3.3 pct to 47.6% year on year. The decline was mainly due to the high share of products such as masks in 2023Q1 and the high base due to high gross margins. The cost ratio of +5.9 pct year on year dragged down profits a lot. When broken down, the sales expense ratio was +5 pct year over year. It is expected to be mainly due to the company increasing marketing and promotion on both the medical and consumer sides after the consumption environment stabilizes. The management cost ratio is expected to be +1.6 pct year over year due to an increase in managers' remuneration. Overall, the company's net interest rate to mother was -6.5 pct to 9.6% year on year, and profitability gradually returned to normal.

Looking ahead: Healthcare has built a one-stop dressing provider through extended categories. Domestic channels & products are developing during the development period; consumption has shown results in 2022 through optimized pricing and discounts, cost reduction and efficiency, and will continue to increase in high quality and steady growth in the future. The company is expected to further consolidate its regular business and start again in 2024. The company's net profit for 2024-2026 is estimated to be 8.2, 9.4 billion yuan, and 1.13 billion yuan, corresponding to PE of 21, 19, and 15X, maintaining a “buy” rating.

Risk warning

1. Changes in the terminal retail environment;

2. Brand inventory removal falls short of expectations;

3. Macroeconomic changes at home and abroad.