The company's revenue is growing steadily, and Vimezi's losses affect apparent performance

2024H1 achieved revenue of 0.62 billion yuan/yoy +28.6%, net profit attributable to mother 0.033 billion yuan/yoy -9.4%, deducted net profit of 0.031 billion yuan/yoy -13.1%. 2024Q2's revenue was 0.334 billion yuan/yoy +28.9%, and net profit to mother was 0.014 billion yuan/yoy -51.7%. Vimizi, which holds 32% of the company's shares, and the holding subsidiary Shennkang caused profit losses of 21.746/2.976 million yuan respectively. Considering that Vimezi's performance affects the company's apparent profit forecast, we lowered our 2024 profit forecast and kept the 2025-2026 profit forecast unchanged. We expect the company's net profit to be 1.1/1.71/1.98 (1.45 billion yuan before 2024), yoy +19.8%/+54.6%/+15.5%, EPS is 1.1/1.71/1.97 yuan. The current stock price corresponds to PE 17.9/11.6/10.0 times PE. The company's main business grew steadily, and endogenous and extrinsic development progressed concurrently, maintaining a “buy” rating.

Domestic and overseas demand continued to recover and the expansion of the wet wipe category was recognized. The three major business growth rates were impressive: 2024H1 toothbrush/wet wipes/other oral care products and other revenue 0.25/0.2/0.16 billion yuan, yoy +20.2%/+32.6%/+25.9%, and revenue from edible probiotics was 14.967 million yuan. Among them, toothbrush 2024q1/q2 revenue YoY +15.8%/+24.4%. Volume and price split: 2024H1 toothbrush sales 0.21 billions/yoy +27.1%, unit price 1.177 yuan/yoy -5.46%, wet wipe sales 2.77 billion pieces/yoy +38.7%, unit price 7.2 yuan/100 pieces, yoy -4%. Subregion: 2024H1 foreign/domestic revenue 0.38/0.24 billion yuan, yoy +26.5%/+32.1%, gross profit margin 27.07%/22.38%. Overseas demand for toothbrushes has recovered, and 2024H1 Chinese toothbrush exports are 3.33 billion pcs/yoy +11%.

Gross margin has increased steadily, waiting for the operating inflection point of shareholding subsidiaries

2024H1 gross profit margin 25.27% /yoy+2.56pct, net profit margin 5.15% /yoy-2.43pct. 2024Q2 gross profit margin 25.17% /yoy+1.54pct, net profit margin 3.89% /yoy-7.44pct; 2024H1 oral care products/wipes gross margin 26.48%/22.45%. The average purchase price of the company's main raw materials, brush/plastic particles/non-woven fabric, was 29148.11/351.02/443.39 yuan/ton, YOY -16.82%/+4.18%/-3.49%. Reduced costs+scale effects help improve profitability. Expense side: 2024H1 sales/management/ development/ finance cost rate is 7.1%/4.2%/3.3%/0.1%, yoy+0.68pct/-0.94pct/+0.44pct/+0.53pct. The net profit of Vimizi and 2024H1, a holding subsidiary of the company, is 39.4395/-0.1593 million yuan. Wei Meizi hired image ambassadors Xiao Zhan and Guo Jingjing. At the same time, she lost net profit due to extensive offline channel expenses. She is optimistic that high-quality ambassadors will enhance brand potential and multi-channel layout to help long-term performance development.

Risk warning: fluctuating raw material prices, market competition risk, new business progress falling short of expectations, etc.