Description of the event

In the first three quarters of 2024, the company achieved revenue/net profit/net profit after deducting non-net profit of 1.053/0.118/0.092 billion yuan, an increase of 4%/10%/6%; of these, 2024Q3 corresponded to 0.35/0.046/0.037 billion yuan, respectively, an increase of 2%/9%/7%.

Incident comments

Q3 Online growth rate is superior & offline share is increasing, and potential categories such as electric toothbrushes have achieved high growth. The company's Q3 revenue also increased by 2%. Among them: 1) Sub-channel: It is estimated that e-commerce is growing faster in Q3. Among them, Douyin, Tmall, and JD all performed well; the trend of increasing offline shares continues. 2) By product: It is estimated that adult toothpaste products will continue to have an excellent growth trend (H1 revenue share 78%) and continue to show strong competitiveness in the anti-sensitive segment. H1's share in the offline anti-sensitive field is about 63%; electric toothbrushes have increased rapidly under the drive of modernization. H1's adult toothpaste/adult toothbrush/children's toothbrush/children's toothbrush/electric toothbrush/oral medical and beauty care products are +7%/+1%/+0.5%/-3%/+62%/-11%, respectively.

Q3 Product structure optimization boosted gross margin to record highs. In line with additional cost investment, overall profit remained stable. Q3 gross margin also increased by 7.0 pcts to 53.9%, a record high in a single quarter since launch. Mainly due to continuous optimization of the product structure, in particular, the proportion of high-end medical research series has increased markedly. Q3 Sales/management/R&D/finance expenses ratio was +7.2/+0.3/-0.1/+0.6pcts year-on-year, and sales expenses also increased 29%, with the aim of increasing channel expansion and product promotion. Q3 The attribution/deduction of non-net interest rate increased slightly by 0.9/0.5pct.

E-commerce channel companies are growing at an excellent rate, and Douyin has stepped up efforts this year to boost its momentum. Douyin is growing even better. Tmall & Jingdong continue to expand. According to tripartite data, Leng Sing Ling's Douyin GMV grew multiple times over the same period last year, with a significant increase over the previous month, and the October ranking rose from 6th in September to 3rd. In addition to platform dividends, e-commerce channels are gaining momentum, and some companies are paying more attention to the influence of the Douyin platform. This year, optimization has been carried out in terms of team building, marketing strategies, and new products, gradually fulfilling the trend of increasing growth over month. If the Douyin platform continues to break through, it is expected to accelerate e-commerce and overall revenue growth, similar to Baiya's previous development path.

The offline channel market has shrunk, and the company's share has increased. The overall demand for offline channels for oral care products has shrunk. According to Nielsen data, the H1 offline toothpaste/toothbrush industry decreased by 4%/14% respectively, while the company achieved a share increase of 0.35pct to 8.6% around refined channel operation and product promotion. Among them: 1) Toothpaste: The share of the company's offline channels increased by 0.5 pct to 8.6% during the H1 period, surpassed P&G (under brands such as Crest) to 3rd; 2) Toothbrush: The share of the company's offline channels increased by 0.35 pct to 5.6% during the H1 period, and continued to rank 2.

At this stage, the company's growth driver is the continuous increase in the share of oral care products. In the medium term, the revenue contribution of dental care and beauty care products is gradually becoming apparent, which is expected to drive growth acceleration. Product structure optimization promotes gradual increase in volume, price and profit. Currently, the average price of 100 grams of the company's terminals is 12-15 yuan (the price of high-end medical research series is 20-30 yuan), and the average factory price of toothpaste in 2023 has increased 14% compared to 2019. Furthermore, the company's marketing side grasped the rise of Guochao (co-branded with IP such as Sichuan and Chongqing Hot Pot and National Expo) and actively promoted youthful transformation (signing Wu Lei, collaborating with Dong Yuhui, etc.). The company is expected to achieve net profit of 0.154/0.182 billion yuan in 2024/2025, corresponding to PE 35/29x, and maintain a “buy” rating.

Risk warning

1. Competition in the dental care industry continues to intensify;

2. The company's channel operation results are lower than expected.