Core logic: 1) The oral care industry has both the stability of essential products and the growth of product upgrades. The scale of the domestic oral cleaning and care industry expanded from 38.85 billion yuan to 49.15 billion yuan in 2017-2023, with a compound growth rate of 4%. Among them, basic products such as adult toothpaste and toothbrush grew steadily, and new products such as mouthwash and children's oral care grew rapidly; 2) Dengkang's Cold Acid brand awareness is high. The compounded revenue/net profit growth rate of the company in 2019-2023 was 9.9%/22.3%, respectively. Market share continues to increase; 3) The company has increased its investment in e-commerce channel resources in recent years, achieving a compound growth rate of 53.2% between 2020 and 2023. At the same time, the offline channel layout is extensive, and online and offline collaborative development is developed.

Company Overview: Leader in anti-sensitive toothpaste, strong brand power barriers. The company focuses on the field of anti-sensitive toothpaste, and its brand influence continues to grow. The product matrix covers adult/children's basic oral care, dental care and beauty care products, and electric oral care products. In 2019-2023, the company's revenue rose from 0.94 billion yuan to 1.38 billion yuan, and the CAGR was 9.9%. The company continued to optimize the product structure to increase the average product price, withstand the pressure of external environmental fluctuations, and revenue grew steadily. Product side: Adult basic oral care products account for about 90% of revenue, and there is plenty of potential for new products. The compound growth rate of basic oral care products for adults and children in 2020-2023 was 8.5%/18.5%, respectively; the combined revenue growth rate of dental care and beauty care products/electric oral care products reached 214%/54%, respectively. Channel side:

The revenue of the distribution model/direct supply/e-commerce model in 2023 was 0.99/0.05/0.32 billion yuan respectively, accounting for 72.4%/3.9%/23.0% of total revenue, respectively.

Revenue from traditional distribution channels maintained a steady growth trend in 2020-2023, with a compound growth rate of 5.1%. The e-commerce model is developing rapidly, with the Douyin channel growing rapidly after being deployed in 2020. Driven by Douyin, the company's e-commerce channel achieved a compound growth rate of 53.2% between 2020 and 2023.

Industry analysis: The volume of basic products has decreased and the price has increased, and there is plenty of room for new product development. The overall size of the toothpaste market is growing steadily. In 2023, the toothpaste category market size was 30.22 billion yuan, and the combined growth rate of the toothpaste market in 2017-2023 was around 2.1%. Overall, sales in the toothpaste category market are stable. In recent years, sales have fluctuated due to shrinking offline consumption scenarios, and the average price in the industry continues to rise slowly. Taking the average price of about 120 grams of toothpaste for daily industrial consumption in 36 large and medium-sized cities, it rose from 8.6 yuan/box at the end of 2016 to 11.7 yuan/box at the end of 2023, with a compound growth rate of 4.5%. Looking at the market share pattern in recent years, the competitive pattern for toothpaste is relatively concentrated, but there is some differentiation between brands. From 2021 to 2023, the share of Yunnan Baiyao and Cold Acid brands steadily increased, and the shares of foreign brands such as Haolai, Colgate, and China, as well as small long-tail brands, contracted. In 2023, the offline market share of toothpaste products reached CR10 reached 80.6%, CR5 reached 65.4%. Dengkang Dental ranked fourth in market share, and the offline market share in 2023 was about 8%.

Company analysis: There is plenty of room for product structure optimization, and online efforts accelerate growth. The price of cold sour cream is positioned as a popular consumer brand, focusing on cost performance. Among the company's four major product lines of medical research, specialized research, preliminary care, and basic research, the pricing and gross margin of medical research and specialty products are significantly superior to other series, and currently still account for a low proportion of overall revenue. The company actively optimizes the low-end product line below 10 yuan to strengthen the promotion of high-end products, and the product structure optimization effect is expected to be reflected relatively quickly. The channel side accelerated the deployment of e-commerce channels. Starting in 2021, the company focused on investing in new channels such as Douyin. By 2023, Douyin had become the company's second largest e-commerce platform. The company adopts a high-end strategy in e-commerce channels, and mainly promotes medical research and specialized research series on e-commerce platforms. The overall gross margin of e-commerce channels increased in 2021-2023, and the gross margin of e-commerce channels reached 45.9% in 2023. As the product structure continues to be upgraded and the cost-efficiency ratio of e-commerce channels is optimized, the profitability of e-commerce channels is expected to improve.

Profit forecast and valuation: The compound net profit growth rate of the company is expected to be 18% in 2024-2026. EPS is 0.94 yuan, 1.13 yuan, and 1.33 yuan respectively. The corresponding PE is 27 times, 23 times, and 19 times, respectively. Considering the company's high brand barriers and the accelerated growth of e-commerce channels, the product structure is expected to be optimized, and the corresponding target price will be 31.02 yuan in 2024, which will be raised to a “buy” rating.

Risk warning: the risk of large fluctuations in raw material prices, the risk of channel expansion falling short of expectations, and the risk of increased market competition.