Profit is predicted to increase 10% year over year, exceeding market expectations
We expect the company's 1H22 revenue to increase 6% year over year, with excellent juice and coffee performance; 1H22 net profit increased 10% year over year, mainly due to good cost and expense management.
Key points of interest
Revenue from soft drinks grew steadily, while juice and coffee continued to grow at a high rate. The company maintained steady growth under repeated disruptions of the 1H22 epidemic. We expect the company's revenue to increase by about 6% in the first half of the year. Among them (1) we expect soft drink revenue to maintain a steady increase in the number of units in the first half of the year to support steady performance; (2) juice, coffee, and tea drinks performed well. We expect juice and coffee revenue to increase by double digits year-on-year, and tea revenue may double in the second half of the year; (3) the company's packaged water specifications are mainly biased towards small packages, and we expect double-digit revenue in the first half of the year to be more perturbed by the epidemic Falling. Looking ahead to the second half of the year, we expect to record good performance as the recent epidemic situation improves and hotter weather increases, and we expect the company's revenue to maintain a medium single-digit year-on-year increase throughout the year.
Costs and expenses were well controlled, and profit performance exceeded expectations. The overall increase in PET prices of more than 25% in the first half of the year put a lot of pressure on the cost side of the industry. The company was less affected by its more effective procurement strategy (more PET purchases were made at the beginning of the year, which basically covered annual usage). Meanwhile, fee-side companies continue to improve the work efficiency of business agents and management personnel and optimize expenses through informatization capabilities. Overall, we expect the company's 1H22 net profit to be +10% year over year, and the profit performance exceeds the overall level of the industry. Considering that the company PET has basically locked in prices for the whole year, we expect the company's profit performance to continue in the second half of the year.
The acquisition of a gas-free beverage plant further improved operational efficiency. The company and Taikoo recently signed a contract with Coca Cola Bottlers Production Holdings to acquire shares in Coca Cola's non-carbonated beverage factory (the company acquired 5 of these production companies at a transaction cost of about 540 million yuan), and included the production process of non-carbonated beverages (including functional water, juice, tea, milk drinks and coffee) into the company system. Considering the low level of profit in the original production process, we expect that the transaction will only make a small contribution to the company's profit side. The core significance is to further improve the flexibility and responsiveness of the company's production of non-carbonated beverage products, and the operating capacity may be further improved.
Profit forecasting and valuation
The company is currently trading 9.9/8.9 times the 2022/23 price-earnings ratio. Considering that the company's cost side is well controlled, we raised the 2022 profit forecast by 5.6% to 660 million yuan, basically keeping the 2023 profit forecast unchanged at 690 million yuan; considering that the epidemic situation in the second half of the year was still uncertain, keeping the target price unchanged at HK$3.8, corresponding to 14.8/13.3 times the 2022/23 price-earnings ratio and 49% upward space. Maintain an outperforming industry rating.
risks
Prices of raw materials have remained high, and competition has intensified.
