Key points of investment

Dengkang Dental revealed 2024Q3 results:

2024Q1-3 achieved operating income of 1.053 billion yuan, +4.1% year over year; realized net profit of 0.118 billion yuan, +9.5% year over year, net profit of 0.092 billion yuan after deduction, +6.4% year on year. 24Q3 achieved revenue of 0.35 billion yuan in a single quarter, +1.6% year-on-year, realized net profit of 0.046 billion yuan, +9.2% year-on-year, and net profit of 0.037 billion yuan after deduction, and +6.6% year-on-year. Revenue side performance has been steady, and profitability has improved.

It is expected that e-commerce will continue to grow significantly, and its share will increase further

By channel, tracking data from third-party platforms Jiuqian and Feigua, we expect the company's online e-commerce to continue its excellent growth performance in 24Q3. In the future, the company's e-commerce channels will use the two major platforms of central e-commerce and interest e-commerce to assess brand positioning and build an e-commerce product matrix using “top-level design, strategic development, and detailed implementation” as the guide. Through refined operation and deep integration of platform resources, user asset pool accumulation, accurate C-end user operation, and effective connection of “people to the warehouse” are realized through user accumulation and marketing transformation, forming the company's second growth curve and boosting new sales and profit growth. We expect the offline channel to perform relatively smoothly.

The share of medical research single products is rising, and the company's gross margin continues to be optimized

Gross profit margin: 2024Q1-3's gross margin was 49.25%, +5.07pct year on year, of which 24Q3 gross margin was 53.92% in a single quarter, +7.04pct year on year, and +8.56pct month-on-month. 24Q3 The company's gross margin increased significantly over the same period, and we think it was mainly driven by the increase in sales share of the company's high-end medical research series. According to data from the third-party platform Feigua, the medical research series accounted for about 34% of Douyin sales in the first three quarters of 2024, and the 24Q3 single-quarter medical research series accounted for 48% of Douyin sales. The company's large single product strategy has begun to bear fruit, and the product structure continues to be optimized.

Expense rate & net interest rate: 2024Q1-3 company's sales/management/R&D/finance expense rates were 31.28%/4.19%/3.64%/-0.76%, respectively, +5.05/ -0.17/ +0.36/ +0.44pct, respectively. Among them, the 24Q3 single season expenses rates were 33.51%/4.38%/3.80%/-0.53%, respectively, compared to +7.21/ +0.35/ -0.6/0.62pct. Among them, the sales expense ratio increased significantly I think it is mainly due to the increase in marketing investment related to Q3 school season promotion+Double Eleven warm-up. Under the combined influence, 2024Q1-3's net interest rate was 11.20%, +0.55pct year on year, 13.01% for the 24Q3 single quarter, +0.91pct year on year, and +2.77pct month-on-month.

Cash flow & contract liabilities: 2024Q3's net operating cash flow was $0.107 billion, +69.84% year over year.

The company received 0.459 billion yuan in cash from selling products and providing services, which is +12.22% over the same period last year, and has strong cash collection capacity.

2024Q1-3's contract debt was $0.142 billion, a net increase of about 0.07 billion yuan over the same period last year, and a net increase of 0.028 billion yuan over the end of the first half of the year. The amount of contract debt continues to increase or provide support for the company's subsequent performance growth.

Profit forecasting and valuation

The company is an absolute leader in the field of anti-allergic toothpaste. Since then, through continuous high-end product upgrades and diversified category layout, the channel side has further improved its declining market layout and entered powerful online platforms such as Douyin, with plenty of potential for subsequent growth. We expect the company's revenue for 2024-2026 to be 14.32/ 16.61/1.91 billion yuan, up 4.07%/16.03%/14.99% year on year; net profit to mother of 1.53/ 1.82/ 0.214 billion yuan, up 8.44%/18.51%/17.81% year over year, corresponding to the current market capitalization of the company's PE of 31/26/ 22X, respectively, maintaining the “gain” rating.

Risk warning

Competition in the industry intensified, new product development fell short of expectations, raw material costs fluctuated greatly, sales volume and price increases fell short of expectations, and fund-raising projects fell short of expectations.