Differentiated Positioning or Achieving Sustainable Growth in the Cotton Era

Despite the pressure in the market environment, this year's cotton market is now good. This should be due to the company's long-term accumulation and three core strengths: cotton philosophy, quality genes, and medical background. The “all-cotton concept” is reflected in: the cotton era insisted on using 100% cotton, which distinguished it from products using chemical fiber on the market. Through more accurate marketing, differences in communication with consumers were found.

The all-cotton era inherited the high requirements of robust medicine for product quality, selected the highest grade cotton raw materials, and maintained high quality standards during processing. The cotton era had a medical background, which is rare in the consumer goods industry, providing the brand with a unique competitive advantage.

Based on this, the cotton era has made tactical adjustments in recent years, including returning value, enriching product application scenarios, improving product functionality, and strengthening marketing communication.

The cotton era maintained strategic strength and flexible tactical adjustments to adapt to changes in the market and channels, and its consistent high quality continued to be recognized by the market and consumers. No matter how the market changes, the cotton era adheres to the core strategy of “product leadership, excellent operation”. The increase in sales volume in the cotton era was based on essential improvements in product quality, marketing level, and operation level, rather than short-term market behavior, so we believe that sales growth is sustainable.

Medical production capacity and brand expansion will bring new development opportunities to the company. Steady Healthcare has been exporting since 33 years ago and has accumulated rich market experience. After returning to normal 2024Q1-3, foreign sales accounted for 45% of the medical sector's revenue.

The company announced the merger and acquisition of GRI in September 2024. The project has strategic significance in many aspects: on the one hand, GRI has production bases in China, the United States, Vietnam, and Dominica, and Robust Healthcare will use its global production base to optimize production capacity; on the other hand, through GRI channels, we hope to allow more robust medical products to enter the US market. In terms of synergy, GRI's product line is similar to Robust Healthcare, focusing mainly on products such as operating room consumables, which helps simplify the integration process. The company has also formulated a 100-day post-investment plan to actively promote business integration.

Raise the profit forecast and adjust the rating to “buy”

The company's overall development strategy is “product leadership, excellent operation”, and focuses on product quality to ensure the health and sustainability of sales growth. The medical sector has recovered from the high base impact of infection protection products, which has had a positive impact on the company's brand awareness, channels, and sales growth. After the merger and acquisition of GRI, Robust Healthcare received more potential orders, enhanced its ability to fight risks, and customers showed great interest and enthusiasm for cooperation.

The cotton era has returned to a healthy and sustainable growth trend, without sacrificing profit or gross profit, focusing on product quality, and achieving high-quality growth. Therefore, let me summarize three points: The impact of the public health incident on the medical business has passed, the cotton era has returned to health and sustainable development, and medical production capacity and brand going overseas will bring new development opportunities to the company.

Based on the above changes, we adjusted the profit forecast and raised it to a “buy” rating; the company's net profit for 24-26 is expected to be 0.81/1.03/1.27 billion yuan (the original values were 8.0, 9.3, and 1.08 billion yuan), EPS was 1.4, 1.8, and 2.2 yuan/share (the original values were 1.4, 1.6, and 1.8 yuan/share), and PE was 30x, 24x, and 19x, respectively.

Risk warning: market competition is fierce, core executives are lost, and development falls short of expectations