Matters:

Recent developments in the company: In the fourth quarter of 2024, the company's consumer goods business is expected to grow at an accelerated pace against the backdrop of strong marketing combined with hot events in the industry. Third-party online data shows that from October to November 2024, the total sales growth rate of the Cotton Era brand and Princess Nice brand accelerated significantly compared to the first three quarters of 2024. Sales of the company's two core categories, cotton towels and sanitary napkins, both increased by more than 30% in October-November; in the medical sector, the impact of the high base of epidemic prevention products was basically eliminated in the third quarter and returned to normal growth; the acquisition of GRI in epitaxial growth was beneficial to overseas production capacity and channel expansion.

Guoxin Textile's opinion: 1) Consumer sector: The company's products are made of 100% cotton. Through material education, “cotton” is not equal to “cotton”, leading to industry pattern optimization and a recovery in company share. Sales of cotton towels, the core product of the cotton era, grew rapidly this year; Princess Nice sanitary napkins performed well after the recent negative incident in the sanitary napkin industry; according to third-party online data, the Tmall, JD, and Douyin platforms increased by 41.5% year-on-year in the first three quarters. 2) Medical sector: The impact of the high base of the epidemic has basically been eliminated, and the growth of the medical business will accelerate, and the synergy effect will be evident after the merger and acquisition of GRI. GRI profit sheets will be merged in the fourth quarter to contribute to increased performance; in the medium to long term, Robust Healthcare will collaborate with various aspects such as manufacturing, sales networks, products, etc., and at the same time, there is plenty of room for GRI profit margin improvement under the power of steady healthcare. 3) Risk warning: Consumer demand is weak, new customer development falls short of expectations, channel development falls short of expectations; 4) Investment advice: In the cotton era, brands grew vigorously, and endogenous and outward expansion of the medical business grew. The growth rate of the consumer goods business in the first three quarters was better than expected. E-commerce continued its rapid growth trend in October-November. In the future, it is expected that about 100 new stores will drive growth every year. Measures such as focusing on advantageous categories, adjusting store size, and improving floor efficiency are conducive to increasing profitability. In the medical sector, the impact of the high base of epidemic prevention products starting in the third quarter has been eliminated, and the revenue scale has returned to healthy development. In the medium to long term, epitaxial mergers and acquisitions are expected to achieve synergy and complementarity in product channels, and the improvement of medical consumables products and the integration of multiple channels will show sufficient growth momentum. Mainly based on booming growth in the cotton era, we raised our revenue growth forecast for the fourth quarter of this year and next year, and then raised our profit forecast. We expect net profit to mother for 2024-2026 to be 0.81/1.06/1.22 billion yuan (previous value was 0.8/1.03/1.16 billion yuan), an increase of 39.4%/31.1%/15.4% year-on-year. Based on the increase in profit forecasts, the target price was raised to 43-47 yuan (previous value was 34-36 yuan), corresponding to 24-26x PE in 2025, maintaining the “superior to market” rating.

Comments:

Consumer goods sector: Under all-cotton material education, sales of cotton towels, the core product of the cotton era, grew rapidly. After the recent negative incident in the sanitary napkin industry, Princess Ness performed excellent.1. The cotton towel category has maintained a high growth rate since this year, and the online platform share has increased significantly. Third-party data shows that the cotton towel online channel grew 37% in October-November. The company is the founder of the cotton towel category. Over the past few years, the industry has grown rapidly as penetration rates have increased. However, due to the lack of clear standards in the industry, some new entrants have fought a price war by mixing low-cost chemical fibers in the product, leading to a competitive pattern in the industry Deterioration. At the end of 2021, the national standard for soft towels was officially implemented. It was jointly researched and drafted by companies such as Cotton Times. The national standard “GB/T 40276-2021 soft towel” stipulates that the soft towel product label should include the fiber content and content of the product. After the implementation of the new standard, some brands named their products “soft towel”, which makes it easy for consumers to confuse them with soft cotton towels. In the second half of 2023, the company began focusing on material promotion, marketing and marketing to educate consumers.

The company's current strategy is to concentrate resources on the product side for five strategic products: cotton towels, sanitary napkins, baby clothes, knitted underwear, and loungewear. This year, the focus is on cotton towels. Cotton towels are the largest category in the company's consumer goods sector, accounting for 26% of the company's consumer business and 14% of the company's overall revenue. The company's products are made of 100% cotton, which clearly distinguishes them from most chemical fiber “soft towels” on the market. Marketing promotion focuses on consumer material education, focusing on “cotton” not equal “cotton”. We actively promote “one look, two touch, three smell” tips through official public accounts, brand events, etc., and guide consumers to distinguish “cotton” soft towels from “cotton” soft towels containing chemical fibers through the “100% cotton” product ingredient list on the package, not slippery to the touch, and no smell when soaked in hot water.

The results of material education have been shown this year, and cotton towel revenue has grown rapidly. According to the company's disclosure, omni-channel growth was 31.3% in the first three quarters, and the single third quarter increased by 47.1%. According to third-party data, the Tmall, JD, and Douyin platforms grew 29.9% in the first three quarters, 46.4% in the third quarter, and 36.7% in 10+November.

In terms of market share, according to third-party data, the face wash towel category maintained a rapid annualized growth rate of more than 12% on the Tmall, Jingdong+Douyin platform, while the cotton era brand share declined to 11.8% year by year from 2021 to 2023, but clearly rebounded to 14% from 2024; on the Tmall platform, early data share changes were even more obvious. In 2017-2018, the cotton era brand dominated, and then fell to around 17% in 2021, then rose to 19.3% in 2022, and then to 19.3% It rebounded further to 20.1% in 2024.

2. Recent negative events in the sanitary napkin industry have broken out. The company's sanitary napkin brand “Princess Nice” ushered in rapid growth. Third-party data showed that Princess Nice's online channel growth accelerated to 35% in October-November

Sanitary napkins are also the company's core strategic product, accounting for 13% of the company's consumer business and 7% of the company's overall revenue. Recently, a negative incident broke out in the sanitary napkin industry. Some bloggers published the results of measuring the length of sanitary napkins, triggering netizens to follow the trend, and discovered that many well-known sanitary napkin brands such as ABC and Sophie had cutting corners, and the indicated length was inconsistent with the actual length. On the other hand, there were doubts about product safety. Some netizens pointed out that the pH standard of sanitary napkins is low, questioning the same pH requirements for sanitary napkins and Class C textile products that do not directly touch the skin.

Relying on the medical production experience of robust medicine for more than 30 years, Princess Nice sanitary napkins use all-cotton full-surface technology, and use selected grade 1 to 2 high-quality cotton products to obtain medical grade certification one after another. Using 0.3 million clean production workshops, they complete air filtration every 3 minutes. Through testing, they do not contain migratory fluorescent substances. They are committed to solving problems such as heavy, stuffy, and red rashes on the side of the pads on the sides of the pads, to ensure the hygiene conditions of the product and improve the user experience. A chance to stand out.

According to the company's disclosure, sanitary napkins grew 10.4% in omni-channel in the first three quarters of this year and 17.1% in the third quarter of this year. According to third-party data, the e-commerce channel Tmall, JD+ Douyin platform, fell slightly by 6.2% in the first three quarters, achieved positive growth of 3.2% in the third quarter, and growth accelerated to 35.4% in October and November.

Furthermore, Princess Nice joined Sam as the first domestic sanitary napkin brand, and is also sold in Fat Donglai.

3. Online and offline channel revenue has increased sharply since this year. E-commerce channel growth accelerated to 41% in October-November, and the company's online channel achieved a cumulative increase of 14.0% in the first three quarters; according to third-party data, the cotton era of the Tmall + JD+ Douyin platform was +14.5% year-on-year in the first three quarters, and 41.5% year-on-year increase in October and November; offline stores have grown nearly double digits, and supermarket channels have made significant progress. Princess Nice entered Sam as the first domestic sanitary napkin brand. As of June 30, 2024, the company has a total of 444 stores, including 360 self-operated stores and 84 franchised stores. In the future, it is expected to open 100 new stores and net 80 stores every year.

Medical sector: The growth of the medical business accelerated. The synergy effect after the merger and acquisition of GRI will show that after the impact of the epidemic base was eliminated, revenue growth accelerated to double digits, +13.1% to 0.94 billion yuan over the same period last year. Among them, conventional medical consumables products increased 14.3% year over year to 0.85 billion yuan. In terms of channels, overseas sales channels accumulated +12.7% year-on-year in the first three quarters to 1.2 billion yuan, accounting for 45.2%. Medical C-side sales developed well in the third quarter, with domestic pharmacies and e-commerce channels +21.6% year-on-year to 0.19 billion yuan.

GRI's profit statement was consolidated in the fourth quarter of this year, contributing to the increase in performance; in the medium to long term, Robust Healthcare will collaborate with it in various aspects such as manufacturing, sales networks, and products, and at the same time, there is plenty of room for GRI's profit margin to improve under the power of Steady Healthcare.

GRI is a global medical consumables and industrial protection company headquartered in Georgia, USA. Revenue in 2023 exceeds 0.15 billion US dollars, with revenue classified by region accounting for about 70% in the US, 20% in Europe, and 10% in Asia; sales of medical consumables by business classification account for about 55%, sales of industrial protective products, and 25% of other contract processing; the main products include surgical kits, hole towels, sheets, containers, surgical gowns, and industrial protective clothing. The target company has production bases all over the world, including China, the United States, Vietnam, Dominica, etc., with a total production area of over 0.08 million square meters, sales and logistics layouts in the US and Europe, and a total storage area of more than 0.07 million square meters. As of June 30, 2024, the company had total assets of 0.16 billion US dollars and net assets of 67 million; 2023/6/30-2024/6/30, the company's operating income was 0.15 billion US dollars, net profit of 10.15 million US dollars, net interest rate of 6.6%; profit before interest, tax, depreciation and amortization was 20.57 million US dollars, profit margin of 13.4%.

Judging from the acquisition valuation, the target company's valuation is about 0.2 billion US dollars, the equity valuation is about 0.16 billion US dollars, and the corresponding price-earnings ratio is about 16 times.

An equity incentive plan was announced. The compound revenue growth rate of the consumer and medical sectors is expected to be 13-18% in 2025-2027. The company will issue a restricted stock incentive plan (draft). The performance assessment target is 2025-2027. The medical sector (net endogenous growth does not include mergers and acquisitions) and the consumer sector each have a trigger value of 13% year-on-year revenue growth, and the target value is 18%. It reflects the company's confidence in steady future development, and is expected to stimulate employee motivation and boost confidence in the capital market.

Investment suggestions: In the cotton era, brands grew rapidly, and the medical business grew stronger than expected in the first three quarters. E-commerce continued its rapid growth trend in October-November. In the future, it is expected that about 100 new stores will drive growth every year. Measures such as focusing on advantageous categories, adjusting store size, and improving floor efficiency are conducive to increasing profitability. In the medical sector, the impact of the high base of epidemic prevention products starting in the third quarter has been eliminated, and the revenue scale has returned to healthy development. In the medium to long term, epitaxial mergers and acquisitions are expected to achieve synergy and complementarity in product channels, and the improvement of medical consumables products and the integration of multiple channels will show sufficient growth momentum.

Mainly based on booming growth in the cotton era, we raised our revenue growth forecast for the fourth quarter of this year and next year, and then raised our profit forecast. We expect net profit to mother for 2024-2026 to be 0.81/1.06/1.22 billion yuan (previous value was 0.8/1.03/1.16 billion yuan), an increase of 39.4%/31.1%/15.4% year-on-year. Based on the increase in profit forecasts, the target price was raised to 43-47 yuan (previous value was 34-36 yuan), corresponding to 24-26 xPE in 2025, maintaining the “superior to market” rating.

Risk Alerts

Consumer demand is weak, new customer development falls short of expectations, and channel development falls short of expectations.