Introduction to this report:
The company's probiotic products are upgraded and iterated, the product structure is continuously optimized, and the marketing style is innovative. The Douyin brand's potential is spreading, and the advantages of the Tmall platform are gradually showing, which is expected to drive profit improvement.
Key points of investment:
Conclusion: The company's product structure continues to be upgraded, and peripheral provinces are expanding at an accelerated pace, maintaining the 2024-2026 EPS forecast of 0.70/0.81/0.99 yuan. Considering the strong growth in the company's performance, the target price was raised to 27.54 yuan (previously 21.11 yuan) to maintain the “gain” rating.
Major probiotic products have been upgraded, and the product structure has been continuously optimized. The company relied on patented technology N13 to help upgrade probiotic sanitary napkin products. The probiotic series products were selected as “Innovative Products of the Year 2024” by the European PLMA Amsterdam exhibition organizer. Probiotic PRO+ products have been upgraded in terms of product efficacy and user experience: 1) In terms of product efficacy, add 5 times the probiotic LA88+N13+ prebiotics to improve private microbiota for 3 months. 2) In terms of user experience, the product uses a 3D superconducting skin-friendly surface curve fit design and a 0.07cm ultra-thin absorbent core to achieve ergonomic design and bring users a comfortable experience. As the pioneer of the big health concept in the industry, the company achieved product structure improvement through the promotion of large probiotic products. The overall gross margin of 2024Q1 was 54%, of which the free point brand's gross margin reached 58%. The increase in the share of high-end products led to the company's 2024Q1 gross margin of +7.50pct/month-on-month +1.16pct. It is expected that the promotion of new probiotic PRO+ products is expected to further boost profitability.
Eliminate production capacity restrictions and innovate marketing style. The problem of tight production capacity of the probiotic series was gradually alleviated, and constraints were eliminated after being out of stock in the early stages and reissued. The new probiotic products focus on the standard of protective Shubao liquid sanitary napkins. The company cooperates with e-commerce platforms to seize the minds of target groups. Consumers who buy Shubao liquid sanitary napkins can receive 2 free point probiotic sanitary napkins. The company's marketing style continues to innovate, accurately anchor the target customer base, and the market share is expected to increase.
E-commerce profits have improved, and offline has made great strides. 1) Online: As a driving channel, Douyin has shaped brand reputation, and the spillover effect is obvious. E-commerce has continued to increase since April, with a year-on-year increase of +279%, JD +183%, and Tmall +59%. Following the launch of the Douyin channel, the Freedom Point brand broke out on the Tmall channel and gained new growth through a series of combinations such as brand empowerment. In 2024, Tmall 618 Kickoff ranked second (ranked 6th in 2023), with a repurchase rate of over 40%, which is close to the level of leading international brands. It is expected that Tmall will contribute a good profit margin, and the increase in ranking and share is expected to unleash profits. 2) Offline: The shopping guide management team of the operation center joined hands with provincial and regional shopping guide management to officially release offline Douyin 2.0, bringing about an iteration of excellent market cases, active sales effort “Q2 > Q1”. Peripheral provinces expanded steadily, and potential provinces such as Guangdong and Jiangsu performed well. Hunan is expected to cross the break-even point, and profits will grow nonlinearly after the scale effect is released.
Risk warning: industry competition squeezes profits; product innovation is imitated by peers.