Core views:

The company released its annual report for 22 years and its quarterly report for 23. 2022 achieved revenue of 2,802 billion yuan (YoY +13.82%), net profit of 423 million yuan (YoY +16.60%), net profit of non-homing YoY +9.36%; 22Q4 revenue YoY +0.19%, net profit YoY +19.10%, net profit of non-homing mother YoY +46.05%; 23Q1 revenue YoY +22.79%, net profit YoY +44.65%.

The downward cycle of baby hygiene products has been steady and expanding customers. 22H1/22H2/22A baby hygiene products revenue YoY +18.7%/13.1%/15.5%, 22A sales volume/tablet price YoY +19.2%/-3.1%. The birth rate declined, the diaper market contracted, and the industry was reshuffled due to a mismatch between supply and demand. Some foreign-funded product channels followed suit and sales were stable, some domestic brands operated excellently, retained and increased, and small brands and small production capacity transitioned or exited. Haoyue's top five customers accounted for 59%/72%/76% of sales in 20/21/22. After the reshuffle, customer concentration increased. The company's customers, such as foreign-owned Kao, Unicar, and domestic Babycare and Beba, were all high-quality customers. The company was deeply tied to big customers through product iteration+scale effects, and is expected to further consolidate downstream relationships after the launch of easy-wear and detachable products.

Other products are growing steadily, and export sales are expected to grow at an accelerated pace. 22 Adult hygiene products revenue YoY +6.2%, sales/tablet price YoY +1.5%/+4.6%, the penetration rate of menstrual pants increased, and the adult incontinence products education market; 22 revenue from other products YoY +44.5%, sales of composite cores and wet wipes increased. 22A's domestic revenue is YOY +16%, and overseas revenue is YOY -2%. Thailand's own brands enter major supermarkets and celebrity endorsements to conduct market education. Combined with the promotion of production capacity in Thai factories, growth is expected to accelerate.

Flexible gross margin release. The gross profit margin in '22 was 23.15%, the year-on-year rate was -3.17 pct, and the gross margin of 22Q4/23Q1 was +5.5/0.9 pct year-on-year. Polymer costs have already declined after oil prices fell in '22, and the cost of wood pulp declined in '23, and profit elasticity was high. Expenses accounted for a stable share of 22 throughout the year.

Profit forecast and investment advice: The company is expected to return net profit of 53/61/70 million yuan in 23-25. Leading diaper manufacturers have technical and product barriers, and falling costs will bring profit elasticity. The company was given 15 times PE for 23 years, with a reasonable value of 50.88 yuan/share, maintaining the “buy” rating.

Risk warning. The birth rate has declined at an accelerated pace, competition in the industry has intensified, and overseas demand has fallen short of expectations.