1H24 results are in line with our expectations

The company announced 1H24 results, with revenue of 0.7 billion yuan, an increase of 5.4%, and net profit to mother of 0.07 billion yuan, an increase of 9.8%. The performance is in line with our expectations. On a quarterly basis, Q1/Q2 revenue increased 5.2%/5.7%, respectively, and net profit to mother increased 15.6%/4.2%, respectively.

The company also announced a shareholder dividend return plan for the next three years. The plan is to distribute cash dividends in different proportions according to the company's development stage, capital expenditure arrangements and operating conditions. Under different circumstances, the dividend rate will not be less than 20%/40%/80%, respectively, to increase investor returns.

Development trends

1. Toothpaste is leading in growth, toothbrush operations are steady, and e-commerce channels continue to grow rapidly. Looking at 1H24 revenue in detail, 1) By product: adult oral care revenue increased 6.2% to 0.59 billion yuan, of which adult toothpaste/adult toothbrush revenue increased 7%/0.6% to 0.55/0.08 billion yuan respectively, and toothpaste revenue growth rate was impressive; children's oral care revenue also fell 0.7% to 0.054 billion yuan, of which children's toothpaste/children's toothbrush revenue was +0.5%/-3.5% to 0.038/0.016 billion yuan, respectively; electric toothbrush/dental care and beauty Nursing income was +62.1%/-10.5%, respectively, and electric toothbrushes continued to increase rapidly. 2) Channel division: 1H24's e-commerce revenue reached 0.16 billion yuan, an increase of 28.5%. The revenue share increased 4.1ppt to 22.9% year over year, contributing to the main revenue increase. Distribution/direct supply channel revenue remained flat/+1.7% year on year, and offline operations were steady.

2. Product structure optimization boosts gross margin and continuous investment in marketing and promotion. The company's 1H24 gross margin also increased by 4.1ppt to 46.9%. Among them, the gross margin of adult toothpaste/adult toothbrush increased by 4.4pp/1.3ppt respectively. The company launched a variety of new products from specialized research and medical research platforms, such as probiotic technology specialized in anti-allergic toothpaste. Product structure optimization led to overall improvement in gross margin. On the cost side, 1H24's sales/management/finance expense ratios were +4pp/ -0.4pp/ +0.4ppt, respectively. The company continued to increase e-commerce channel development, and sales promotion expenses increased year-on-year. Under the combined influence, the net profit margin of 1H24 was 10.3%, an increase of 0.4ppt over the same period.

3. Optimistic that dental anti-allergy leaders will continue to develop their prospects on the product, brand and channel side. We believe that 1) on the product side, the company is based on the field of oral health, driving product development with basic research. The competitive advantage of core categories such as toothpaste and toothbrush is expected to continue to be strengthened, and new products such as electric toothbrushes and oral beauty care will continue to be launched; 2) On the brand side, the company will focus on changing consumer behavior to increase marketing and promotion efforts on content platforms such as Douyin and Xiaohongshu to enhance brand exposure. On the other hand, the company will launch new products, and increase cooperation with authoritative platforms such as CCTV to strengthen brand endorsement and shape the image of professional domestic products; 3) Channel side:

The company continues to cultivate offline channels. According to Nielsen statistics, 1H24's share of toothpaste offline channels increased to 8.6%. The company also increased strategic investment in emerging channels such as Douyin, and collaborated online and offline development.

Profit forecasting and valuation

Keeping the profit forecast unchanged, the current stock price corresponds to 26/23 times P/E for 2024/25. Keep outperforming the industry rating and target price unchanged, corresponding to 36/33 times P/E in 2024/25, with 40% room for growth.

risks

Increased market competition; product quality issues; fluctuating raw material prices.