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The company released its 2024 mid-year report. In 2024, H1 achieved revenue of 0.812 billion yuan, a year-on-year increase of 29.31%, a year-on-year increase of 111.71%, net profit after deducting 0.082 billion yuan, and a year-on-year increase of 89.97%, mainly due to the increase in the company's export orders during the reporting period; in a single quarter, 24Q2 achieved revenue of 0.429 billion yuan, a year-on-year increase of 24.47%, net profit to mother 0.053 billion yuan, up 12.08% year on year, net profit not returned to mother was 0.047 billion yuan, a decrease of 2.59% year on year. In terms of cash flow, net cash flow from operating activities was 0.004 billion yuan, a year-on-year decrease of 96.24%, mainly due to an increase in export orders, an increase in cash to purchase goods and receive labor payments, and credit periods granted to new customers during the reporting period, which led to a slowdown in repayments.

In addition, the company plans to distribute a cash dividend of 2.7 yuan (tax included) to all shareholders for every 10 shares. No bonus shares will be given, and the share capital will not be transferred from the Provident Fund. The source of cash dividends is own funds. A total cash dividend of $49.41 million is expected to be distributed.

Analytical judgment:

The company's customer resource system is stable, and sales at home and abroad are growing simultaneously by product. The company mainly focuses on pet and personal care products, including pet pads, pet diapers, nursing pads, etc. In '24, H1's main business, disposable pet hygiene products, achieved revenue of 0.763 billion yuan, an increase of 29.07% over the previous year, contributing 93.93% to revenue. Among them, the main product, pet pads, achieved revenue of 0.713 billion yuan, an increase of 30.47% over the previous year, contributing 87.71% to revenue. By region, H1's overseas revenue increased by 29.35% to 0.759 billion yuan, contributing 93.39% to revenue. The company's customer resource system gradually matured, reached long-term cooperation with well-known European and American supermarket brands, and built a stable and lasting customer base. Overseas sales are expected to gradually grow; domestic revenue increased by 28.71% to 0.054 billion yuan, accounting for 6.61%, and domestic pet economy demand was strong at the same time.

24 H1 gross margin continued to rise. In terms of short-term impact on net profit level profitability, the company's gross profit margin in 2024H1 was 18.88%, up 5.53 pcts year on year, and the company's net interest rate was 11.72%, up 4.56 pcts year on year; the increase in gross margin was the increase in gross margin of the company's main products, pet pads and overseas markets. The gross margin of H1 pet padding increased 6.53 pcts to 18.17% year on year in 24.

Overseas gross margin increased by 6.05pct to 20.10%. In terms of period expenses, the company's expenses rate for the 2024H1 period was 4.91%, up 1.33pct year on year. Among them, sales/management/R&D/finance expenses were 1.78%/2.69%/1.42%/-0.98%, respectively, and -0.04/-0.33/-0.47/+2.17pct, respectively. The increase in the financial expense ratio was mainly due to the stable exchange rate of the US dollar against the RMB, which had less impact on exchange earnings compared to the same period last year. Looking at a single quarter, 24Q2 gross margin increased by 0.89 pct year on year, and net margin decreased by 1.36 pct year on year, mainly due to fluctuations in financial expense ratios.

Investment advice:

As a leading domestic health care product, the company is expected to fully benefit from pet economic dividends. With its comprehensive advantages in channels, customers, product research and development, large-scale production, etc., the company continues to expand new and old customers. The share of existing customers is increasing, and we are optimistic about its future growth. We maintain our previous profit forecast. We expect the company's 24-26 revenue to be 1.706, 2.008, and 2.311 billion yuan, respectively; EPS for 24-26 will be 0.91, 1.07, and 1.23 yuan respectively, corresponding to the closing price of 12.24 yuan/share on August 22, 2024, and PE will be 13/11/10 times, respectively. Considering the rapid development of the pet products industry in which the company is located and the company is expected to fully benefit as a leader, it maintains a “buy” rating.

Risk warning:

1) the risk of rising raw material costs, 2) the risk of exchange rate fluctuations, 3) the risk of increased industry competition, 4) the development of new customers falls short of expectations, and fluctuating sea freight rates.