Key points of investment:

The growth rate of personal care leaders has accelerated since 2023, and the performance accelerated release of the company's potential accumulated in mid-range and high-end sanitary napkin product upgrades and omni-channel collaboration in 2023. Annual revenue was +33% year-on-year, and net profit to mother was +27.2% YoY. 1H24's growth continued to accelerate, with revenue +61% YoY and net profit to mother +36.4% YoY. In recent years, structural optimization brought about by the company's mid-range and high-end products such as probiotics and sensitive skin has led to a significant increase in gross margin, while sales expenses have increased. The net interest rate has remained around 10%-11% since 2023.

E-commerce and other provinces have strong potential to evolve into a national brand

The online retail rate of sanitary napkins in China has risen to about 30%. Judging from changes in the competitive pattern, Baiya's market share increased rapidly after the epidemic, but its omni-channel share is still about 2%, and there is still room for continuous growth.

The company implements the development strategy of “intensive cultivation of the Sichuan and Chongqing market, orderly domestic expansion, and e-commerce construction”.

① Active online attack: From 2019 to 2023, the company's e-commerce channel revenue CAGR reached 61%, 1H24 e-commerce channel revenue was +176% year-on-year. Currently, e-commerce accounts for about 43%, which is comparable to the distribution volume. ② Focus on offline intensive cultivation and expansion: According to the prospectus, the company's market share in the Sichuan and Chongqing regions and Yungui and Shaanxi regions was about 20% and 10%, respectively, around 2019. Under “intensive cultivation in recent years, the company has continued to promote product and channel structure optimization, and Freedom Point's market share in the five core provinces continues to increase.

In 2023, the company accelerated the pace of market expansion in peripheral provinces, focusing on Guangdong, Hunan, Hebei and other provinces as key regions, using the brand volume accumulated by e-commerce through advantageous channels to evolve into a national brand.

The product has an excellent structure, expanded customer base, and focused on improving health and practicality as value-added sanitary napkins. Product structure upgrades are the main driving force for industry development. From 2018 to 2023, the average retail price of sanitary napkins in China was about 4% CAGR, and emphasis on health and function became a product upgrade trend.

The company's 2023-1H24 Health Series product revenue accounted for 26% and 42% of sanitary napkins respectively, driving a significant increase in unit price and gross margin. The company's product upgrades focus on the pain points of health and practicality, and expand the coverage of the middle and high-end customer base. In terms of health, according to the Liberty Point Tmall flagship store, the retail price of the probiotics and sensitive skin series products that focus on promotion is over 1 yuan, and some products are close to 2 yuan. In terms of practicality, the company also launched practical daily sanitary napkins tailored for travel, prolonged sitting, etc., such as “Daily Pants” and “Sitting 360”, to solve consumer pain points through product innovation.

Profit forecasting and investment advice

We expect the company's net profit to be 0.32 billion yuan, 0.4 billion yuan, and 0.5 billion yuan respectively in 2024-2026, with growth rates of 36.0%, 22.5%, and 26.2% respectively. Currently, the company's stock price corresponds to 32X and 26X in 24 and 25, which is higher than the average of comparable companies. Considering that the company's valuation is relatively reasonable with an expected 20-25% growth over 25-26 years, and that the growth rate of the company's personal care brand is significantly higher than that of comparable companies, it enjoys a certain growth premium, and the first coverage gives it a “buy” rating.

Risk warning

The risk of increasing market competition, the risk of fluctuating raw material prices, and the risk of expanding marketing networks