Performance review
The 2021 results are in line with our expectations
The company announced its 2021 results: revenue of 19.78 billion yuan, +14.7% year on year; Guimu's net profit was 570 million yuan, +14.8% year on year, in line with our expectations. Among them, 2H21 revenue was +9.1% year on year, and net profit of the mother was -0.3% year on year.
Development trends
2H21 continues to grow steadily, and pressure on raw material prices is showing. The 2H21 company continued to grow under the normalization of the base figure. Among them (1) Soft drinks: riding the trend of unsweetened carbonated drinks, continued to record a steady increase of +8.5% year-on-year revenue, and passed AH! HA! Strategies to meet the challenges of emerging soft drink companies such as Genki Forest worked (2021 AH! HA! (Sales exceeded 100 million yuan), 2H21's carbonic acid share has stopped falling and stabilized, and the company is expected to boost again in 2022; (2) Fruit juice: comprehensively enhance product competitiveness through flavor and product form expansion (launch of peach-flavored juice, 100% juice and juice bubble water, etc.) to better handle Huiyuan's concession share. 2H21 revenue was +13.1% year-on-year. In addition, among other categories, fruit-flavored water and airless soda water markets effectively extended the Chunyue brand, boosted sales growth of mid-range and high-end water, driving improvements in the packaged water structure, and the unit price of the product increased by 6.1ppt. RTD Coffee also recorded impressive performance of +229% compared to revenue year over year, and some market shares rose to second place. On the cost side, 2H21 raw material prices rose significantly. Among them, PET and aluminum prices both rose more than 30% in the second half of the year. Combined accounting policy changes (expenses such as display and other expenses were transferred to revenue, which affected about 1.5 points throughout the year), 2H21 gross margin fell 9.1ppt to 31.5%; the sales expense ratio was also due to changes in accounting policies, which combined with fine digital management, reduced the net interest rate of 2H21 by 0.2ppt to 2.0%.
Maintaining the pace of promotion in 2022 is expected to support steady growth, and price increases and structural improvements respond positively to cost pressure. The company expects to maintain medium to high unit growth in 2022. We expect growth mainly from:
(1) Continuing to seize the healthy and trendy trend of the industry and maintain a relatively rapid pace to drive growth, including Coca Cola's new product “Walking Through the Stars” and the new Sugar-free Sprite visual design, which is expected to boost sales performance of core soft drink products. (2) Continue to promote fine digital management and expand the number of service network discovery (as of 2021, the company had more than 2 million service outlets, a further increase from 1H21 about 1.8 million). The company expects the pressure on the 1H22 cost side to continue, and will continue to push for 4Q21 price increases to be implemented. New product launches and refined management are also expected to hedge against some cost pressure in terms of gross margin and cost control. With the help of multiple dimensions, we expect the company's profit margin to remain relatively stable.
Profit forecasting and valuation
The company is currently trading 11.7/9.9 times the 2022/23 price-earnings ratio. Considering the disturbances in raw material prices, we lowered our 2022 profit forecast by 4.6% to $590 million, keeping the 2023 profit forecast unchanged at $690 million. Considering the good performance of the company's new products, we kept the target price of HK$3.8 unchanged, corresponding to 14.7/13.2 times the 2022/23 price-earnings ratio and 33% upward space. Maintain an outperforming industry rating.
risks
Prices of raw materials have risen more than expected, and competition has intensified.