The company released its 2023 annual report and 2024 quarterly report: 1) 2023: The company achieved revenue of 1,337 million yuan (-11.8% YoY) and net profit of 103 million yuan (YoY -31.4%); of these, Q4 achieved revenue of 351 million yuan (-6.5% YoY) and net profit to mother of 16 million yuan (-33.2% YoY).

2) 2024Q1: The company achieved revenue of 384 million yuan (+35.2% YoY) and net profit of 42 million yuan (YoY +1974.8%). Along with inventory optimization and order recovery from overseas customers, the company's 2024Q1 revenue and profit performance was outstanding.

Old customers are deeply bound, and new customers are growing steadily. In 2023, the company's revenue for pet pads/pet diapers/nursing mats/non-woven fabrics was 11.62/0.84/0.13/ 0.62 billion yuan (-13.2%/-14.1%/+12.8%/+18.9%, respectively). The company is deeply tied to high-quality global customers such as Amazon, PetSmart, and Walmart. The CR5 of the company's customers in 2023 was 48.7% (-5.0 pct year on year), and the customer stickiness is strong. At the same time, the company has actively participated in large-scale exhibitions at home and abroad in recent years to vigorously expand and explore potential customers and explore the South American and Southeast Asian markets, and is expected to continue to contribute more. In 2023, the export value of the company's pet hygiene products accounted for 31.1% of domestic exports of similar products, a year-on-year decrease of 7.0 pct, mainly due to the departure of some of the company's major customers; with the end of 2024, the order share is expected to increase as customers leave the warehouse.

Overseas orders have been repaired, and independent brand building is progressing steadily. In 2023, the company's domestic/overseas revenue was 0.95 billion yuan (+27.8%/-13.9%, respectively). Affected by the departure of some overseas customers, the company's overseas revenue declined, but with the end of 24Q1 customers, overseas demand is expected to improve in the future. In the domestic market, the company mainly uses direct sales and distribution methods. Currently, the company owns 15 independent brands such as “HUSHPET (HUSHPET)” and “Yiping Flower House”. The future brand business is expected to contribute to the increase.

Fund-raising releases production capacity to help open up the global market. By the end of 2023, the construction of all of the company's fund-raising projects has been completed. The company's core product, pet pads, currently has an annual production capacity of 4.6 billion pieces and an annual production capacity of pet diapers. In 2024, along with the increase in production efficiency of the fund-raising project, the company's production capacity will be further expanded to help the company accelerate the development of the global market and the development of its own brand.

Profits continue to improve, and high dividends give back to shareholders. In 2023, the company's gross margin was 17.0% (+3.3 pct year on year), and the gross margin for single Q4 was 18.6% (+3.3 pct year on year); 24Q1 gross margin was 18.2% (+11.2pct year on year). Benefiting from the decline in prices of various raw materials since 23Q2, the company's profitability increased. On the cost side, the cost rate during 2024Q1 was 4.9% (-4.1pct), with sales/management/R&D/finance expenses rates of 1.8%/2.6%/1.3%/-0.8% (+0.1pct/-0.5pct/-0.8pct/-2.8pct year-on-year), respectively. In terms of dividends, the company plans to distribute 4 yuan for every 10 shares in 2023, combined with the profit distribution plan for the first three quarters of 2023, and the company's repurchase of the company's shares through centralized bidding transactions during 2023. The total amount of the company's cash dividends and repurchases in 2023 reached 149 million yuan, accounting for 144.26% of the company's net profit to mother in 2023, with a dividend rate of about 4.9%. Furthermore, the company plans to pay mid-term dividends in 2024, and high-frequency dividends will continue to give back to shareholders.

Cash flow is under slight pressure, and operating capacity is stable. The company's operating cash flow in 2023 was $202 million (+01 million yuan year on year); 2024Q1 was 34 million yuan (year-on-year -0.39 million yuan). Cash flow was under pressure, mainly due to increased orders, increased cash payments for goods and services, and an increase in accounts receivable balances. In terms of operating capacity, as of the end of 2024Q1, the company's inventory turnover days were 44.34 days (year-on-year - 17.64 days), accounts receivable turnover days were 63.88 days (year-on-year - 5.74 days), and accounts payable turnover days were 42.28 days (year-on-year - 3.88 days).

Profit forecasting and investment ratings: The company is deeply tied to high-quality customers around the world, raising capital to help open up the global market, overseas orders continue to be repaired, and independent brand building is progressing steadily. We expect the company's net profit to be 170 million yuan, 200 million yuan, and 230 million yuan respectively in 2024-2026, with corresponding PE being 14.5X, 12.3X, and 10.7X respectively, maintaining the “buy” rating.

Risk warning: Risk of fluctuations in raw material prices, declining overseas demand, and intensifying market competition.