Matters:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue/net profit of 21.4/2.4/220 million yuan, YoY +33.0%/+27.2%/+20.3%; 24Q1 achieved revenue/net profit to mother/net profit of 7.7/1.00/100 million yuan, YoY +46.4%/+28.1%/+30.6%.
Commentary:
The share of the Big Health series has increased, and e-commerce channels continue to be beautiful. 1) In 23 years, by product, sanitary napkins/diapers/ODM revenue was 19.0/1.2 billion yuan, +40.3%/-4.5%/-7.3% year-on-year. Free Point Sanitary Napkins achieved revenue of 1.89 billion yuan, +41% over the same period; among them, the Big Health series grew faster, accounting for 26.2% of annual revenue.
Looking at the subregion, the company continues to promote the optimization of the product structure in the five core provinces offline and gradually accelerates the pace of expansion in the peripheral provinces. The revenue of the five core provinces/peripheral provinces was +13.4%/+21.2%, respectively, and the revenue growth rate in the peripheral provinces was significantly faster. By channel, the company developed online and offline collaboratively, and distribution/KA/e-commerce revenue was +16.8%/+9.0%/+101.5%, respectively. Freedom Point's sanitary napkin sales reached the top of the Douyin sanitary napkin brand rankings for many months in a row. 2) In 24Q1, the Big Health series continued its high growth trend, and the product structure was upgraded. Free Point sanitary napkin revenue was +54.6% to 7.0 billion yuan, and gross margin was +5.8pct to 57.7%. During the period, the company continued to cultivate advantageous regions, accelerate the construction of e-commerce channels, and expand the national market in an orderly manner. Peripheral provinces and e-commerce channels continued to grow at a high rate of +52.0%/+150.5%, respectively. Looking ahead to 24 years, the revenue of the five core provinces is expected to maintain double-digit growth; however, e-commerce channels may be expected to achieve single-digit profits after operating sub-platforms.
Structural optimization enhances profitability and increases cost investment to accumulate growth. 1) In '23, the company achieved a gross profit margin of 50.3%, +5.2 pct year over year, or mainly benefited from the increase in the share of the Big Health series. On the cost side, the sales/management/finance expense ratios were 31.2%/3.4%/-0.2%, respectively, compared to +6.7/-0.5/+0.02pct. Sales expenses increased or major companies increased brand and channel investment, and marketing expenses were +126.8% compared to the same period. Taken together, the company achieved a net profit margin of 11.1%, -0.5pct year-on-year. 2) In 24Q1, the company achieved a gross profit margin of 54.4%, +7.5pct/month-on-month; on the expense side, sales/management/financial expense ratios were 34.4%/2.7%/-0.1%, respectively, and +11.6/-1.2/-0.1pct, the comprehensive impact on the net profit margin was -1.9pct to 13.4% yoy.
Production capacity bottlenecks are expected to open, and there is strong certainty about performance growth. The company is planning the second phase of the plant, while considering expanding production lines and seeking external cooperation, and capacity pressure is expected to gradually ease. In the long run, the company's five core provinces have a stable competitive advantage, and the peripheral market penetration rate is gradually increasing. Guangdong, Hunan, Hebei and other provinces are expected to continue to grow after cultivation. At the same time, the company focuses on the Big Health series products and further optimizes the product structure. The growth rate of online channels is expected to continue the high growth trend and drive continuous performance.
Investment advice: The company is a leading domestic sanitary napkin enterprise. The basic market in the five core provinces is stable, structural upgrading and national expansion go hand in hand, and the performance is growing and definitive. Therefore, we expect the company to achieve net profit of 3.2/40/50 billion yuan in 24-26 respectively (the value was 31/380 million yuan before 24/25), corresponding to PE of 32/26/21X. Refer to the absolute valuation method, give a target price of 25.6 yuan/share, and maintain the “recommended” rating.
Risk warning: Newly developed customer market expansion falls short of expectations, raw material costs fluctuate greatly, and market competition intensifies.