Dengkang Dental: Deeply involved in oral care, Guochao has risen to become an expert in oral health: The company has launched the core brand “Cold Acid” since 1987, and has now also created differentiated positioning brands such as “Dengkang”, “Medical Research”, and “Bellerol”, covering dental care products such as toothpaste, toothbrushes, and electric toothbrushes for adults and children. Among them, adult toothpaste/toothbrushes are the company's main revenue generation force (accounting for 78%/11% in 2023); in addition, the company is advancing from oral care to the field of oral health, and is actively expanding dental care, dental beauty, dental capital and other business boards block.

Financial Overview: Revenue and profit continued to grow, product structure optimization hedged the impact of increased sales expenses, and profits remained stable. In 2023, the company achieved revenue/net profit of 1.38/0.14 billion yuan (both increased by 5%), and the CAGR for 2020-2023 was 10%/22%. In recent years, gross margin gradually improved with the contribution of continuous optimization of the product structure, while accelerated brand upgrading and channel development led to increased investment in promotion expenses. The overall net interest rate remained relatively stable under the hedging of the two.

Oral care industry: steady growth, nurturing opportunities in the midst of change

The industry is growing steadily but the pattern continues to change. Excellent brands that actively iterate products and seize dividend channel opportunities have ushered in opportunities to increase their share.

The oral cleaning and care products industry is relatively mature. The scale is about 49.2 billion yuan in 2023 (CAGR is about 4% in recent years), and the industry pattern has continued to change in recent years. Taking the offline market for toothpaste products as an example, there was a net change of 9% in Yunnan Baiyao/ Haolai Chemical/ P&G/ Cold Acid/ Colgate shares between 2020 and 2023 +2.1/-1.7/-0.5/+1.5/-1.0pcts to 25%//8%/5%, represented by cold acid The share is bucking the trend, and there is still room for improvement compared to the concentration of mature overseas markets (CR5 for Chinese/Japanese/American oral care products is about 55%/71%/77%). Explore the logic of increasing share: In the context of the rise of the national trend, domestic brands represented by Dengkang continue to innovate and enhance their product capabilities, and some brands have grasped the penetration dividends of new category/new channels (such as e-commerce, etc.).

Company highlights: Deepening the growth of oral care and increasing the share of dental care at this stage, the company's growth gripper is the continuous increase in the share of oral care products. In the medium term, the revenue contribution of dental care and beauty care products is gradually becoming apparent, which is expected to drive growth; continuous optimization of the product structure drives the gradual increase in volume, price, and profit.

Split endogenous growth sources by channel: 1) E-commerce: 53% CAGR in the past 4 years (23% in 2023), benefiting from e-commerce dividends and product promotion, and is expected to maintain a superior growth rate. A better product structure compared to offline has contributed to a sharp rise in price and profit improvement trends (e-commerce gross margin increased by 10 pcts in 2023), and Douyin's rapid expansion (currently accounting for nearly half of e-commerce revenue); 2) Distribution: 5% CAGR in the past 4 years Under a national layout, product iteration improves marketing, and further promotes the same Optimizing commercial delivery is the key. Currently, offline toothpaste/toothbrush are ranked 4th, and the trend of increasing share has been even better in recent years.

The product side focuses on anti-sensitivity and actively promotes innovation, helping to increase the price of power and optimize profits. The company focuses on anti-sensitivity advantages (with a share of 64%), and has continuously incorporated elements such as repair, whitening, and stain removal in recent years to enhance product strength and differentiation. Currently, the average price of 100 grams of terminals is 12-15 yuan (the price of high-end medical research series is 20-30 yuan), and the average factory price of toothpaste in 2023 has increased 14% compared to 2019.

The marketing side grasped the rise of Guochao (co-branded with IP such as Sichuan and Chongqing Hot Pot, National Expo, etc.) and transformed into a younger generation (signing Wu Lei, collaborating with Dong Yuhui, etc.).

The company is expected to achieve net profit of 0.163/0.192 billion yuan in 2024-2025, corresponding to PE 25/22x, giving it a “buy” rating.

Risk warning

1. Competition in the dental care industry continues to intensify; 2. The company's channel operation results fall short of expectations; 3. Profit forecasts fall short of the expected risk.