Event: the company released its 2022 interim report. 22H1 achieved revenue of 1.614 billion yuan, + 43.95% year-on-year; net profit of 42.91 million yuan, + 28.01%; and non-return net profit of 27.36 million yuan, + 60.08%. Among them, 22Q2 achieved revenue of 800 million yuan, year-on-year + 44.23%; net profit of 22.79 million yuan, + 20.02%; and deduction of non-return net profit of 11.84 million yuan,-7.89%.
Comments:
Get rid of the predicament of the industry, revenue has increased substantially. Overall sales in China's milk powder industry fell 4.0 per cent in the first half of this year. Affected by the decline in the number of newborns in the industry, the company achieved a substantial growth of 43.95 per cent in the first half of the year through the promotion of the core business of milk powder (revenue + 18.20 per cent) and innovative business including OEM/ODM (revenue + 308.32 per cent), far outpacing its peers.
The operation continues to be refined, and the efficiency is further improved. Affected by the increase in the proportion of OEM/ODM products and the rise in overseas raw material prices in the first half of the year, the company's gross profit margin was under pressure in the first half of the year, reaching 38.02%, year-on-year-15.58pct. However, in terms of the period expense rate, the company practices a two-pronged approach of fine management, reducing cost and efficiency and increasing the proportion of low-cost products (OEM/ODM), so that the sales expense rate (2022H1 is 25.76%, year-on-year-7.02pct), management expense rate (2022H1 is 5.25%, year-on-year-2.28pct) and financial expense rate (2022H1 is 1.56%, year-on-year-1.82pct) all decreased significantly, and the operating profit margin reached 3.01%. Only a slight drop in 1.47pct from the previous year.
The incentive plan is promulgated and the goal is encouraging. With the release of the semi-annual report, the company announced the second phase of the stock option incentive plan, which plans to grant stock options of no more than 2.26% of the company's total share capital to the company's business backbone, special contributors and reserved incentive targets, with an exercise price of 4.89 yuan. In terms of incentive targets, the company sets specific assessment criteria based on 3.54 billion revenue / 120 million profit in 2022, 6.637 billion revenue / 400 million profit in 2023 and 10.619 billion revenue / 800 million profit in 2024. If this goal is achieved, the company's revenue growth rate will reach 39.37%, 87.49% and 59.99% in 22-23-24, and the profit side will grow by 64.38%, 233.33% and 100.00%, which is very exciting. In addition, the company also put forward the corresponding buyback plan to support the equity incentive plan.
Internal and external factors resonate, and future growth is expected. From the perspective of external factors, the epidemic situation is the core factor affecting the medium-and short-term changes in the number of newborns. with the gradual stabilization of the epidemic situation nationwide, the milk powder market is expected to pick up gradually from the second half of the year to next year. From the company's own point of view, the company continues to strengthen the basic market in the traditional channel, push Ke Ruixin and Aijia organic A2 in the direct supply channel, and harvest orders in the major customer channel, supplemented by meticulous cost management and other means to reduce costs and increase efficiency. Revenue and profits are expected to continue to grow in the future.
Profit forecast and company rating: the environment is gradually improving, and the performance is expected in the future. With the stabilization of the epidemic nationwide in the second half of the year and the company's continuous efforts, we estimate that the EPS in 2022-2024 will be 0.12, 0.22 and 0.41 yuan, with a growth rate of 74 percent, 83 percent, and 90 percent. We maintain our target share price of 7.9 yuan and a "buy" rating.
Risk factors: food safety problems, intensified competition in the industry.