In the 'dilemma', Good Child International, with declining revenue and market value, has become 'frozen'.

At the beginning of 2023, various regions introduced a new round of policies to encourage childbirth, stimulating the stock price of infant and child concept stocks in the Hong Kong stock market. Goodbaby International (01086) experienced a "mini spring" in its stock price.

However, for the next half year, the stock price of Goodbaby remained in a downward trend, with a maximum decline of over 30% during the year, reaching a historical low of HKD 0.42. Looking at a longer time period, the company's stock price experienced a continuous decline for 6 consecutive years, falling by as much as 90% from its historical high.

Multiple factors affecting growth prospects

Zhitong Finance and Economics APP noticed that despite the continuous decline in the stock price, Goodbaby showed significant profit recovery in the first half of 2023. During this period, the company achieved an operating profit of approximately HKD 113 million, nearly 5 times the YoY growth; the net profit attributable to the parent company was HKD 25 million, turning losses into profits YoY.

It is reported that the recovery and growth in profitability of the company is mainly due to the relaxation of global pandemic restrictions, resulting in a stabilization of global logistics and a decrease in input costs (mainly shipping and raw material costs).

However, profit growth without revenue support is like "water without roots", making it difficult to stimulate an increase in the company's stock price. In the first half of 2023, Goodbaby achieved a revenue of CNY 3.889 billion, a YoY decrease of 11.1%.

In its financial report, Goodbaby stated that the company faces several challenges, including ongoing destocking activities by North American and European customers and retailers, geopolitical conflicts in Europe leading to a decline in consumer confidence, the high-cost inventory established during the pandemic dragging down the company's profitability in this period (especially in the first quarter of 2023), the continuous decline in the birth rate in China, and the global economic recovery falling short of expectations.

In terms of brands, in the first half of the year, Goodbaby's strategic brand CYBEX achieved a positive revenue growth of 11.2%, while the revenue of the gb brand and Evenflo brand declined by 19.3% and 10.4% respectively. In addition, revenue from blue-chip and other businesses declined by 53.5%.

Among them, the growth of CYBEX brand revenue is mainly due to its brand position, innovative product portfolio, and continuous launch of new products. It is also attributed to the continuous expansion and strengthening of its global omnichannel distribution network. The decline in Evenflo brand earnings is mainly due to the impact of continuous destocking by major retailers in its main US market since the fourth quarter of 2022, especially in the first quarter of 2023.

According to the Zhitong Finance APP, gb is a full-category brand for maternity, infant, and child products that Goodbaby has been deeply cultivating in the Chinese market. Its products include baby strollers, car seats, etc. The decrease in revenue is mainly attributed to the continuous business adjustments and brand transformation of the brand to adapt to the post-pandemic era and the decline in birth rates in China.

The above-mentioned unfavorable factors have led to the underperformance of the gb brand in the Chinese market. According to data from the National Bureau of Statistics, the total retail sales of consumer goods reached 22.76 trillion yuan in the first half of 2023, a year-on-year increase of 8.2%.

Is recovery on the horizon? Where can we find buying opportunities?

In the view of Zhitong Finance APP, durable baby and child products represented by baby strollers and car seats have the characteristic of low repurchase rate. Without a huge market support, they will lack room for imagination. Therefore, to grasp the business recovery potential of Goodbaby, it is necessary to pay close attention to the trend of birth rates.

At the beginning of 2023, there were frequent positive news about the maternity and child market. For example, the Sichuan Health Commission issued a document stating that the restrictions on whether the registered person is married, the number of births, and the requirements for birth registration have been canceled. In addition, in the implementation opinions or management measures for birth registration in places such as Anhui and Guangdong, "whether married" is no longer a prerequisite for birth registration.

The market generally believes that through a series of supportive policies for childbirth, China's birth rate is expected to bottom out and rebound, and the population is expected to achieve structural optimization and long-term balanced development. Against this background, Goodbaby International is expected to benefit from favorable birth policies.

According to data from iResearch Consulting, in 2021, the scale of China's maternity and child market has reached 3.46 trillion yuan, with a year-on-year growth rate of 10.8%. It is expected that by 2025, the market size will exceed 4.68 trillion yuan, with an annual growth rate of over 7%. As an indispensable part of the maternity and child market, the scale of baby and child products may continue to rise.

At the same time, Goodbaby is also taking measures to respond to market changes. For example, CYBEX will enhance its market share in key regions through innovative product portfolios, new product launches, category expansion, strengthening of supply chain capabilities, e-commerce platforms, and local distribution platforms in new areas.

The gb brand will further adjust its scale and business transformation to focus on profitability and maintain positive cash flow. The gb brand will continue to upgrade its brand, develop its own channels based on social media, reform its wholesale distribution channels, and focus on product innovation, technology, and new product releases.

Evenflo will continue to gain market share based on its strong development in digital channels and consumer recognition of its innovative products. It will continue to launch new, more profitable products. CICC believes that as a leading company in the children's durable goods industry, Goodbaby International meets the needs of different market consumers with its diverse brands. With the stable growth of the European and American markets and the rebound of the Asia-Pacific market, the company's profitability is expected to gradually improve. It is predicted that Goodbaby International's net profit attributable to shareholders will be HKD 80 million, HKD 150 million, and HKD 219 million in 2023-2025, respectively.

The Zhitong Finance APP believes that the trend of the business environment is improving, and the encouragement of childbirth policies is further enhancing. Goodbaby is expected to reach a turning point in its fundamentals. However, the realization of the company's performance growth and its sustainability still need to be continuously tracked in subsequent performance periods.