The first half of 2022 results are in line with our expectations.
The company announced its results for the first half of 2022: revenue of HK $626 million, down 11.0% from the same period last year and 26.5% from the previous year; net profit of HK $215 million, corresponding to HK $0.26 per share, down 19.7% from the same period last year, and 37.0% from the previous month, in line with expectations.
Trend of development
As the epidemic affected the production of the company's base, there was a temporary shortage of core products. In the first half of 2022, Hong Kong market revenue rose 4.0 per cent year-on-year to HK $310 million, mainland market revenue fell 57.1 per cent year-on-year to HK $70 million, and overseas market revenue rose 1.1 per cent to HK $247 million. We believe that with the gradual stabilization of the epidemic, the company's main business is expected to recover gradually in the second half of the year. In addition, the company expects the new product Ganoderma lucidum Le Huo capsule to be launched in the second half of the year.
Gross profit margin and operating margin declined slightly in the first half of 2022. In the first half of 2022, the company's gross margin fell 2.0 percentage points year-on-year to 69.1%. The rate of sales and administrative expenses increased by 1.2 percentage points from a year earlier, operating profit decreased by 2.7 percentage points to 46.6 per cent, and operating profit decreased by 16.0 per cent to HK $292 million.
Other situations: 1) accounts receivable turnover days increased by 57 days to 238 days compared with the end of last year; 2) inventory turnover days increased by 22 days to 410 days compared with the end of last year; 3) accounts payable turnover days decreased by 1 day to 44 days compared with the end of last year; 4) in the first half of 2022, the company has a total of 71 retail stores worldwide. The company is actively expanding tax-free, e-commerce, retail and other channels to expand the growth potential of its main business.
Profit forecast and valuation
Taking into account the impact of the epidemic, we reduced the net profit of 2022max by 15.9% of net profit in 2023 to HK $578 million / HK $635 million.
The current share price corresponds to a price-to-earnings ratio of 13.9 times 2023 / 12.6 times earnings.
Maintain the outperform industry rating, but taking into account the earnings forecast downgrade, we cut the target price by 15.0% to HK $12.50 corresponding to 18.1 times 2022 price-to-earnings ratio and 16.5 times 2023 price-to-earnings ratio, which has 30.6% upside compared to the current share price.
Risk
Demand in Hong Kong and the mainland declined, while sales management expenses increased.