Report summary

A core asset under the Chongqing State-owned Assets Administration Commission, a leading anti-allergy leader, is moving towards oral health. The company is mainly engaged in R&D, production and sales of oral care products. The core brand “Cold Acid” is well known by the public and has high brand assets. The actual controller is the Chongqing State-owned Assets Administration Commission, which has a core backbone shareholding platform, stable management, and is deeply involved in the oral care industry, empowering the company's long-term development. Revenue/net profit to mother increased 4.8%/5% year on year respectively in 2023, and 24Q1 revenue/net profit to mother increased 5.2%/15.6% year on year, respectively, maintaining steady growth. The gross margin for 23/24Q1 was +3.6/+7.2pct to 44.1%/48.4%, respectively, and the net margin was +0.1/+1.0pct year-on-year to 10.3%/10.4%, respectively. Profitability is improving.

Oral care industry: The industry is expanding steadily, and domestic products are bursting with energy. 1) Industry size: The oral cleaning and care products market has reached 50 billion, and is expected to maintain a growth rate of 5.2% in 2022; among them, the growth rate of traditional categories is slowing down, switching from volume increase to price increase, mainly due to product efficacy upgrades, technical process iterations, IP co-branding, etc.; with diversification of consumer demand, emerging categories are growing rapidly, and their functions and optional attributes are stronger, and the pattern is scattered, showing a trend of focus on categories. 2) Competitive landscape: Domestic brands bucked the trend and increased their share. The differentiated efficacy positions of domestic brands (such as Yunnan Baiyao positions Chinese herbal medicine, cold acid is deeply anti-allergic, good for whitening, etc.) have all accumulated deep brand assets. In the post-pandemic era, with a solid offline foundation and flexible organizational structure, they grasped channel dividends, quickly responded to changes on the demand side, and achieved a share increase in share against the trend.

Growth analysis: Prices of traditional categories are mainly increasing, new categories are growing in relay, and multi-channel collaboration is progressing.

Brand side: The core brand Leng Sing Ling's offline channels rank in the top two toothpaste domestic products and three in the anti-sensitive toothpaste circuit; the combination of various marketing methods increases brand exposure and accelerates the brand renewal process; it quickly occupies the consumer mind by holding high standards and quickly occupies the consumer mind, and the overall sales cost rate is manageable.

Product side: ① As the company's main source of revenue and profit, traditional categories are the cornerstone of the company's growth and development. With product efficacy upgrades, the brand anti-allergy circuit penetration rate is expected to increase in the future; compared with leading brands in the oral care industry, under product efficacy upgrades and product structure optimization, there is room for improvement in product unit price and profit margin, which is expected to drive the company's growth over the next 2-3 years; ② New categories: through category expansion, industry expansion, etc., it is expected to rapidly expand into a company Second growth curve.

Channel side: ① Offline: Has deep offline channel barriers, including channel development rates, mature and replicable channel operation models (second-level distribution/distribution systems, entry/exit policies, rebate incentives, etc.), etc., to support the company to continue to develop an empty market; at the same time, it actively develops new channels such as CS, OTC, and beauty stores to achieve diversified layouts, bringing new increases; ② Online: Online penetration rate has more room to improve compared to the industry average, benefiting from the dividends of emerging e-commerce platforms such as Douyin, and continues to grow rapidly; Unit price, high margin products Mainly, online profitability is expected to continue to increase.

Investment advice and profit forecast: As an anti-allergy leader, the company is deeply involved in the oral care industry, adheres to the development strategy of “fix the mouth without relaxation, focus on the oral cavity”, and is moving towards a one-stop service provider in the field of oral health and beauty along the main line of “oral health”. In the short term, consolidating the main business, traditional categories are growing mainly due to price increases due to brand renewal and product efficacy upgrades, consolidating the foundation of the company's revenue and profits; at the same time, laying out new categories such as mouthwash, electric toothbrushes, and dental care products brings growth. In the medium to long term, through self-research, mergers and acquisitions, etc., we will actively promote the expansion of enterprises into high-end manufacturing, dental care, and oral beauty service industries, and create a second growth curve. We expect EPS in 2024/25/26 to be 0.93/1.10/1.31 yuan, respectively, and the corresponding PE will be 26/22/18 times, respectively. The company was valued 25 times 25 times, and the corresponding company's target price was 27.5 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: Industry competition intensifies, online channel competition intensifies, new category expansion falls short of expectations, market acceptance of price increases in traditional categories falls short of expectations, etc.