Recommendation logic: As an ODM manufacturer with outstanding R&D and manufacturing capabilities and leading track segmentation advantages, the company has strong bargaining power in the industrial chain. In the short term, the company's performance is strongly supported by binding orders with emerging brands that are rapidly expanding downstream and expanding cooperation with major international brands for new products. In the medium to long term, the company's design and development capabilities are in a leading position in the industry, and the industrial chain has strong bargaining power. It is expected that the structural development opportunities of the industry will be fully grasped, the advantages of manufacturing scale will be highlighted, and there is broad room for growth.
A pioneer in personal care ODM manufacturing, performance growth has entered the fast track. The company accurately grasped the development trend of the industry and invested in the development of menstrual pants products and composite core diaper products earlier. The product matrix continues to be enriched, establishing a leading edge in the segmented circuit, and performance growth has entered the fast track. In 2019, the company's revenue reached 1.95 billion yuan, an increase of 34.8% over the previous year; in 2016-2019, the company's revenue compound growth rate was 61.4%, as the scale of new customers grew and the volume of old customers continued to expand. In terms of profitability, the company is less affected by the rise in upstream wood pulp and oil prices, which can be transferred to the upward pressure on raw materials. Moreover, as the scale effect gradually became apparent, gross margin showed an upward trend. In 2019, the company's overall gross margin reached 30.4% (+3.8pp). Under the ODM model, the investment in sales expenses and management expenses is limited, and the profit advantage is highlighted. Compared with comparable companies in the industry, the company's net interest rate is at a high level. The company's net interest rate in 2019 was 16.1% (+3.4pp), and increased to 24.2% in 2020 Q3. Overall, under the structural opportunities of the industry, the company gave full play to the advantages of ODM through R&D innovation, and its profit level increased rapidly.
Structural opportunities in the industry are prominent, and the bargaining power of the ODM industry chain has improved. Sales channels for mother and child care products have undergone profound changes in recent years. Specifically: 1) Private traffic channels such as micro commerce and maternal and child e-commerce have continued to expand. Among them, diapers account for 92.6% of sales in mother and child stores and e-commerce channels. Emerging domestic brands have been able to rapidly increase their brand influence within the community, driving order volume for upstream ODM manufacturers; 2) ODM manufacturers rely on years of manufacturing experience in supplying foreign brands, with strong design capabilities and delivery capabilities. The scale effect is strong. New brands and ODM manufacturers have become more affordable Compared to the cooperation method, I'm looking at it now This model is sustainable over a long period of time; 3) The penetration rates of sanitary napkins and diapers reached 100% and 64% respectively in 2018. In the context of the gradual saturation of the industry penetration rate, ODM suppliers can use their R&D capabilities to launch new products, bring new consumption increases and even lead consumer trends. R&D has become an important link in the industry chain, and the bargaining power of ODM manufacturers continues to improve.
Dig deep into the R&D and manufacturing moat to form positive feedback with customers. The company has a leading edge in the research and development of menstrual pants and composite core diaper products. Manufacturing costs are at a low level in the industry, and there is still room for decline as production scale expands. The advantages of R&D and manufacturing will form a positive cycle in which the company obtains orders from more and better brand customers. In terms of R&D reserves, the company is one of the earliest domestic manufacturers of menstrual pants to apply for relevant technical patents, and is also currently the largest domestic manufacturer in terms of production; diapers have now been upgraded to a fourth-generation multi-dimensional composite core without wood pulp, and the barriers to R&D competition are constantly rising. In terms of manufacturing barriers, compared with comparable companies, the company's direct materials share of revenue is at a high level, about 60%, while manufacturing costs account for a relatively lower share, about 4-5%, which proves that as the company's production scale gradually expands, variable costs are kept at a very low level after production line utilization increases. We judge that with the gradual release of the company's new production capacity and the gradual completion and commissioning of its own plant, the scale advantage is expected to be further exploited, and there is still room for unit manufacturing costs to decline. With the support of R&D and manufacturing capabilities, the company helps downstream customers quickly increase their market share and gain a strong voice, forming positive feedback on the industrial chain.
Profit forecasts and investment advice. It is estimated that the EPS for 2020-2022 will be 6.32 yuan, 6.97 yuan, and 8.15 yuan respectively, and the corresponding PE will be 30 times, 28 times, and 24 times, respectively, taking into account Haoyue Care Design and manufacturing capabilities are outstanding, and customer stickiness is strong. Performance is expected to maintain a relatively rapid growth rate. The company is valued 30 times in 2021, with a target price of 209.1 yuan to maintain its “hold” rating.