Key points:

Incident: The company released its report for the third quarter of 2024, putting pressure on performance

The company released its report for the third quarter of 2024. In the first three quarters of 2024, it achieved operating income of 5.955 billion yuan, a year-on-year decrease of 12.72%; realized net profit to mother of 53.5823 million yuan, a year-on-year decrease of 67.61%; and realized deducted non-net profit of 32.0132 million yuan, a year-on-year decrease of 77.51%. Looking at a single quarter, 2024Q3 achieved revenue of 1.934 billion yuan, a year-on-year decrease of 9.54%; realized net profit to mother of -34.0003 million yuan, a year-on-year decrease of 142.01%; realized net profit deducted from non-mother of -368.831 billion yuan, a year-on-year decrease of 153.73%. The household paper industry is fiercely competitive. There are a large number of brands in the domestic market, and the company's market share is being squeezed, and performance is under pressure.

The consumer environment is compounded by fierce market competition, and the company's profitability is under pressure

The gross margin for the first three quarters of 2024 was 31.02%, up 0.83 pct year on year; gross margin for the third quarter was 27.25%, down 6.79 pct year on year. The consumer environment is compounded by fierce market competition, and the company's gross margin is under pressure. The sales/management/R&D/finance expense rates for the first three quarters of 2024 were 21.45%/5.47%/3.03%/0.24%, respectively, +1.16/+0.81/+0.32/+0.50pct, respectively; the third-quarter sales/management/R&D/finance expenses rates were 21.28%/4.75%/2.10%/0.70%, respectively, +0.36/ -1.29/-0.91/+0.75pct, respectively. The net return interest rate for the first three quarters of 2024 was 0.90%, down 1.52 pct year on year; the net return rate for the third quarter was -1.76%, down 5.54 pct year on year, and profitability declined.

Continuously optimize the product structure and actively pursue diversification strategies

The company continues to optimize its product structure, defining personal care products such as high-end, high-margin non-traditional dry wipes and Dolemi sanitary napkins as strategic categories to focus on in the future. On October 20, 2024, Liu Peng, chairman of the company, mentioned “Clean and soft is more than paper” many times at the company's 46th anniversary celebration and announced the company's new product strategy — which will expand diversified products around the core of paper products. Currently, Jierou has seven core brands: Jierou, Doremi, Jieshijia, Taiyang, Yuejirou, Rokeshi, and Xinmian Chunbai. It is gradually transforming from a paper company to a comprehensive lifestyle products company, and is committed to providing consumers with a full range of lifestyle product solutions.

Investment advice

Through continuous brand building, quality assurance, and steady pace of production capacity layout and channel expansion, the company has become one of the representative brands of high-end household paper in the market, and is in the first tier of the household paper industry. We expect the company's 2024-2026 revenue to be 8.885/10.031/11.122 billion yuan, respectively, -9.3%/+12.9%/+10.9%, respectively; net profit to mother of 0.203/0.321/0.394 billion yuan (previous value was 0.346/0.396/0.451 billion yuan), respectively, -38.9%/+57.7%/+22.8%, respectively. As of October 29, 2024, the total share capital and EPS corresponding to the closing market value were $0.16/0.25/0.30, respectively, and the corresponding PE was 46.03/29.18/23.75 times, respectively. Maintain a “buy” rating.

Risk warning

Risk of large fluctuations in pulp prices, risk of exchange rate fluctuations, risk of regional market competition, industrial policy risk, production safety risk.