Summary of the Conference Call on the Home Hardware Industry Company Overview - **Company**: Henkel Group - **Industry**: Home Hardware - **Market Size**: Approximately 70 billion RMB, with basic hardware accounting for about 60% of the market share [6][7] Key Points and Arguments Sales and Profit Growth - **Sales Growth**: Henkel Group's overall sales in October 2025 increased by over 30% year-on-year, with basic hardware contributing about 60% of sales but only 40% of gross profit [1][3] - **Profit Contribution**: Storage, kitchen, and outdoor home products combined accounted for 10% of sales but contributed 60% of overall gross profit, indicating a significant optimization in profit structure [1][3] Future Growth Expectations - **Growth Drivers**: The company expects to maintain rapid growth in the coming year due to: - Fully automated factories improving production efficiency and quality stability - Cost control measures allowing for a 3-5% reduction in costs - Expansion into lower-tier cities and towns to increase market share in mid-to-low-end products [1][3][24] - **Market Penetration**: Henkel's market share is currently less than 1/20 of the total market, indicating substantial growth potential [1][6] Product Performance - **Product Categories**: Basic hardware has a gross margin of over 40%, while storage and kitchen products are performing particularly well on e-commerce platforms [2][3] - **New Product Development**: Continuous product iteration and patent protection strategies are in place to counter imitation challenges, maintaining a 3-6 month lead over competitors [1][9] Regional Growth - **Regional Performance**: - Central and Eastern China show mid-level growth, while Northwestern, Northeastern, and Northern China are experiencing rapid growth. - Coverage in county and town markets is below 40%, presenting a significant opportunity for expansion [10][11] Competitive Landscape - **Market Position**: Henkel has a competitive advantage over rivals like Dongtai due to a larger number of terminal outlets, with over 15,000 C-end outlets compared to Dongtai's fewer than 3,000 [8] - **Challenges**: The company faces challenges from imitation but has strategies in place to mitigate these risks through innovation and patent protections [9][10] Pricing Strategy - **Pricing Trends**: The pricing strategy varies across product types, with potential price reductions in basic hardware and higher-end storage and kitchen products. However, overall gross margins are expected to remain stable [5][24] Inventory and Sales Performance - **Inventory Levels**: Core distributors are experiencing a 15-20% increase in inventory pressure, while smaller distributors face a 5% increase, indicating manageable inventory levels [15] - **Sales Performance of New Stores**: Mature stores in the old renovation segment generate annual sales of 300,000 to 500,000 RMB, with profit margins reaching up to 100% [21][19] Future Strategies - **Expansion Plans**: The company plans to open 10,000 old renovation stores over the next two years, currently operating around 130-140 stores [18][24] - **Unicorn Factory**: The new factory is expected to enhance production capacity and reduce costs, with a projected gross margin increase of over 10% upon full operation by August 2026 [22][23] Key Performance Indicators - **Focus Areas**: Future growth will focus on whole-house renovation projects, further penetration into tier-three and tier-four markets, and the cloud business, which is expected to grow by 50% next year [24][25] Additional Important Insights - **Market Dynamics**: The home hardware industry is resilient despite pressures from the real estate sector, driven by adjustments in profit structures and increased demand for hardware components in furniture design [7] - **Collaborations**: Partnerships with major clients like Oppein and Sophia are expected to grow, with projections of increasing their contribution to 15-20% of total sales by Q4 2025 [20]

Investment Rating - The investment rating for the company is "Buy" and is maintained [9] Core Views - The company has shown strong revenue growth with total revenue of 16.844 billion yuan for Q1 to Q3 2025, representing a year-on-year increase of 34.13%. The net profit attributable to the parent company reached 3.761 billion yuan, up 38.91% year-on-year [2][4] - New product categories, particularly in the hydration segment, are experiencing rapid growth, while mature products and regions are showing a slowdown in growth [5] - The company is actively exploring international markets, particularly in Southeast Asia, and has initiated construction of a base in Hainan to support cross-border business [7] Revenue Breakdown - For Q1 to Q3 2025, revenue from energy drinks was 12.563 billion yuan (up 19.57% year-on-year), while hydration products generated 2.847 billion yuan (up 135.08% year-on-year) [5] - Revenue from direct sales was 1.84 billion yuan (up 27.13% year-on-year), and online sales reached 488 million yuan (up 49.07% year-on-year) [5] Profitability Improvement - The net profit margin for Q1 to Q3 2025 improved by 0.77 percentage points to 22.33%, with a gross margin of 45.17% [6] - The company has managed to reduce its expense ratio, leading to enhanced profitability [6] Future Outlook - The company is expected to continue its growth trajectory with projected EPS of 8.92 yuan and 11.47 yuan for 2025 and 2026, respectively, corresponding to PE ratios of 34 and 26 times [7]

Investment Rating - The report maintains a "Buy" rating for the company [4] Core Views - The company is expected to benefit from the ongoing advantages of raw milk and structural upgrades that enhance profitability [1][2] - New product iterations and management empowerment are anticipated to drive long-term growth, with new products contributing over 10% to overall revenue [1] - The company’s flexible milk source structure, with 30% from self-owned farms, 30% from joint ventures, and 40% from social farms, allows for profit enhancement under cost advantages [2] Summary by Sections Revenue and Profitability - Projected revenue for 2023 is 10,987 million yuan, with a growth rate of 9.80%. By 2027, revenue is expected to reach 12,416 million yuan, with a growth rate of 5.09% [3][9] - The company’s net profit for 2023 is estimated at 431 million yuan, growing to 931 million yuan by 2027, reflecting a growth rate of 14.30% [3][9] - The gross margin is projected to improve from 26.9% in 2023 to 29.3% in 2027, indicating a positive trend in profitability [11] Cost Structure and Product Mix - The company’s cost structure is expected to benefit from a reduction in raw milk prices, which have decreased to 3.04 yuan per kilogram as of June 2025 [2] - The product mix is shifting towards low-temperature fresh milk and specialty yogurt, which have higher gross margins compared to room-temperature products (40%+ for low-temperature fresh milk vs. 20%+ for room-temperature) [2] Earnings Forecast and Valuation - The earnings per share (EPS) is projected to increase from 0.50 yuan in 2023 to 1.08 yuan in 2027, with corresponding price-to-earnings (P/E) ratios decreasing from 38 to 17 over the same period [3][12] - The report forecasts a return on equity (ROE) improvement from 16.85% in 2023 to 20.23% in 2027, indicating enhanced shareholder value [3][11]

Investment Rating - The report maintains a "Recommended" rating for the company [6][8]. Core Views - The company experienced a decline in revenue and net profit in 2024, with total revenue of 4.0 billion yuan, down 3.0% year-on-year, and a net profit of 0.4 billion yuan, down 29.5% year-on-year. However, the adjusted net profit increased by 2.2% year-on-year to 0.55 billion yuan [3]. - The company's formulation business showed steady growth, with revenue of 2.42 billion yuan, up 6.0% year-on-year, while the raw material drug segment faced a decline in revenue of 1.55 billion yuan, down 13.4% year-on-year [4]. - The report highlights the potential for growth in the company's unique and innovative products, which are expected to drive the formulation business to new heights [5]. Summary by Sections Financial Performance - In 2024, the company achieved total revenue of 4.0 billion yuan, with a net profit of 0.4 billion yuan. The first quarter of 2025 saw revenue of 1.01 billion yuan, down 2.9% year-on-year, and a net profit of 0.14 billion yuan, down 4.7% year-on-year [3]. - The company forecasts a recovery in net profit from 0.64 billion yuan in 2025 to 0.77 billion yuan in 2027, with corresponding growth rates of 61.2%, 7.0%, and 11.7% [6][7]. Business Segments - The formulation business is the main growth driver, with significant contributions from respiratory and dermatological products, while the raw material drug segment is under pressure due to price declines [4][5]. - The report notes that the company is focusing on upgrading its product offerings and increasing its share in high-end markets, which is expected to stabilize the raw material drug business in the long term [6]. Future Outlook - The company is expected to benefit from the launch of innovative products and the growth of unique products, which will likely enhance its market position and drive revenue growth [5][6].

Investment Rating - The investment rating for the company is "Accumulate" [6] Core Views - The company is expected to face revenue and profit declines in 2024, with projected revenues of 6.84 billion yuan and net profit of 0.65 billion yuan, representing year-on-year decreases of 27.30% and 62.62% respectively [1] - The company anticipates stable budget targets for 2025, with a focus on optimizing fee investments and enhancing product innovation in both online and offline channels [3][2] - The company plans to increase support for S-level distributors and introduce more products at popular price points in the offline market [3] Financial Performance Summary - For 2024, the company's revenue is projected to be 6.84 billion yuan, with a year-on-year decline of 27.30%. The main brands' revenues are expected to decline significantly, with the main brand汤臣倍健 projected at 3.74 billion yuan, down 30.79% [1] - The gross profit margin for Q4 2024 is expected to be 60.26%, a decrease of 4.95 percentage points year-on-year, while the net profit margin is projected to be -19.53% [2] - The company forecasts a recovery in revenue growth from 2025 onwards, with expected revenues of 7.05 billion yuan in 2025, reflecting a growth of 3.14% [4] Market and Product Strategy - The company plans to enhance its online product innovation and focus on localized operations in international markets, particularly in the infant and child segment [2] - The revenue from online and offline channels for 2024 is expected to be 3.36 billion yuan and 3.42 billion yuan respectively, with year-on-year declines of 25.35% and 29.79% [2] - The company aims to increase its market share in the international market by launching new products tailored to local preferences [2] Earnings Forecast - The company expects a recovery in net profit starting in 2025, with projected net profits of 0.88 billion yuan, a year-on-year increase of 34% [3] - The earnings per share (EPS) is projected to be 0.51 yuan in 2025, with a price-to-earnings (P/E) ratio of 22.87 [4]