The dental care industry has entered a period of steady growth (23-28E CAGR is 3.75%), and the share of domestic brands has increased better. The reason for this is that the differential positioning of brands, omni-channel operation, and the depth and richness of product line layout are the keys to maintaining the position of the industry. New momentum for growth comes from penetration dividends of new category/incremental scenarios/new channels.

The company has a strong brand accumulation & deep distribution network & anti-allergy technology heritage, and strives for steady progress. 1) Strong brand accumulation: The core brand, Cold Acid Spirit, is a leader in the anti-sensitivity field. It launched desensitizing toothpaste as early as 1987. “Hot, hot, sour, and sweet, eat if you want” is deeply popular. According to Nielsen, it accounted for 60% of the domestic anti-sensitive toothpaste market share in 21-23.

In recent years, they have cooperated with Wu Lei and Dong Yuhui to create a youthful image through innovative marketing such as hot pot toothpaste, national expo crossborder, and cat claw brushes. 2) The distribution foundation is deep: in 19-23, the CAGR was 5%, the share bucked the trend, covering hundreds of thousands of retail terminals, and the county development model formed a channel barrier in the sinking market. 3) Anti-sensitive technology matrix:

Empower product updates and iterations, and lay out more high-end product lines for precare/research/medical research.

There is strong certainty that performance will deliver steady growth. Future highlights:

Efficacy upgrades and product structure optimization drive up the price band: the factory price CAGR of toothpaste in 19-23 was 3.33%, boosting the higher-end product line (medical research/specialized research series), driving gross margin optimization as the proportion increased. Based on the purchase price of a single bottle, the retail price of the highest-end medical research line is about 4 times that of classic anti-allergic toothpaste.

E-commerce is booming, Douyin is expanding beautifully, and profit optimization: in 19-23, the share was raised from 6% to 23%, revenue CAGR increased by 53%, gross margin increased by 10pct in year 23, the 1H24 cold acid brand Douyin sales doubled year-on-year, the toothpaste category ranked 10th, and broadcasts accounted for 51.16% (6% in the same period last year).

From “small mouths” to “big mouths”, the product line continues to grow in depth: Refer to mature markets where consumers demand more personalized and specialized oral care, and the penetration rate of advanced products is higher (Japan/US accounts for 30% +), the company rapidly expanded from basic oral cleaning to basic dental care, oral beauty, etc., contributing incrementally in the short term, opening up room for growth in the long term.

Profit forecasts, valuations, and ratings

The estimated net profit for 24-26 is 0.161/0.185/0.212 billion yuan, +14.26%/+14.46%/+14.48% YoY, corresponding PE 27/23/20 times. Considering that the company is a leader in anti-allergic toothpaste, the rise in e-commerce and the upgrading of high-end products brought new momentum, giving the company 25 times PE in 25 years, with a target price of 26.83 yuan/share. For the first time, coverage gave it an “increase in weight” rating.

Risk warning

Product upgrades/new product sales/e-commerce expansion fell short of expectations, and industry competition intensified