In 2022, the company's revenue/net profit to the mother increased 5.1%/5.5% to 92.6 billion/5.3 billion yuan. Under the influence of the epidemic, the company's revenue side slowed in 2022, but the company promoted a 30 bps increase in operating profit margin (OPM) year-on-year through good sales expense management. Among them, OPM increased sharply by 150 bps in the second half of the year. Looking ahead to 2023, the company's endogenous revenue is expected to grow in medium units, and profitability is expected to continue to expand year over year to pursue high-quality development.

In 2022, the company's revenue/net profit to the mother increased 5.1%/5.5% to 92.59 billion/5.30 billion yuan, and the performance was steady.

In 2022, the company achieved revenue of 92.59 billion yuan, +5.1% year on year, of which 202H2's revenue was 44.87 billion yuan, +6.2% year on year, and growth rate accelerated from H1; the company's net profit in 2022 was 5.30 billion yuan, +5.5% year on year, of which 202H2's net profit was 1.55 billion yuan to the mother, -25.4% year on year. The profit decline was mainly due to the fact that 202H2 confirmed fair value returns on non-financial assets and liabilities of 6.3 billion yuan compared to 202H2, while 202H2's investment income was not. It fell 90% from the ratio to $37 million. Key financial indicators and categories: ① Excellent sales rate control contributed to the company's gross sales margin of +1.1 Pcts to 11.2% year on year in 2022; ② Other revenue and revenue in 2022 was +32% to 2.14 billion yuan, mainly from fair value income of other financial liabilities of RMB 870 million and revenue from the sale of a subsidiary of RMB 240 million; ③ Management rates/financial expenses in 2022 were the same as +0.8Pct/year, respectively.

White milk is growing well, yogurt and milk drinks continue to be under pressure, cold drinks & other businesses are growing rapidly, and the beginning of December was a great deal. (1) Liquid milk: In 2022, the company's liquid milk revenue was 782.7 billion yuan, +2.3% year on year, and the growth rate of H2 liquid milk increased to 4.1% in 2022. Among them ① Room temperature white milk: maintained double-digit growth in 2022, basic white milk grew faster than Terunsu, and organic Terunsu ranked first in the organic high-end milk industry; ② Fresh milk: Demand in the fresh milk industry declined year-on-year in 2022, but the company's fresh milk brand achieved double-digit growth. Among them, the high-end fresh milk brand Daily Fresh Milk increased by more than 30% year on year; ③ Low-temperature business: The external environment in 2022 affected supermarket sales and sales in the industry. Overall decline The company has maintained steady investment, and the profitability of the low-temperature business has increased, with the highest market share for 18 consecutive years; ④ Room temperature yogurt and milk drinks: Industry demand has shrunk, the company continues to promote product innovation, innovative products have achieved breakthroughs, and new products such as pure screened yogurt, yogurt, and real fruit and flower smoothies continue to be popular. (2) Milk powder: Revenue in 2022 was 3.86 billion yuan, -22.0% year on year. The company's milk powder business fluctuated as the birth rate declined and industry competition intensified; Bellamy's cross-border e-commerce and Australian purchasing channels shrank year-on-year due to the negative impact of the epidemic.

(3) Cold drinks: Benefiting from product upgrades and customer and channel development, the company's annual cold drink revenue was 5.65 billion yuan, +33.3% year on year. Performance exceeded expectations. Among them, modern channels and new retail businesses grew rapidly. (4) Cheese and others: The company's other businesses, which mainly trade cheese and dairy products, had annual revenue of 4.80 billion yuan, +97.3% over the same period last year. The faster growth mainly came from 1) and Burra Foods; 2) Mengniu 2B cheese grew; 3) Mengniu 2B cheese grew; 3) Mengniu began merging in December and showed a lot of beauty.

The contraction in sales rates clearly increased gross sales spreads, and the company's OPM performance in the second half of the year exceeded expectations. In 2022, the cost of the company's raw materials such as bread powder rose, but milk prices fell from medium to low orders, and the overall cost remained stable, while changes in product structure and one-time promotion investment made the company's gross margin in 2022 -1.4Pcs to 35.3% year-on-year. Benefiting from a marked decrease in brand promotion expenses and cost efficiency increases, the company's annual sales expenses were 24.1%, -2.5Pcts year on year. Among them, the 2022-H2 sales rate was 21.5% and -3.6 Pcts year on year, a significant decrease. Sales rates have shrunk significantly. In 2022, the company's gross sales margin was +1.1 Pcts to 11.2% year over year, and the 2022H2 gross sales margin was +2.4 Pcts to 12.5% year over year. The company's management fee rate in 2022 was +0.8Pct to 4.8% year-on-year, mainly based on equity incentive expenses. The operating profit margin (OPM) was 5.9%, +0.3Pct year-on-year, and 2022H2 OPM was +1.5Pcts to 6.5% year-on-year. Other aspects, in 2022 ① other expenses were 1.37 billion yuan, -2.5% year on year; ② fair value income from other financial liabilities and income from disposal subsidiaries jointly drove other revenue and income of 2.14 billion yuan, +32% year on year; ③ investment income of 400 million yuan, -41.0% year on year, mainly due to a decrease in Hyundai Animal Husbandry's profit.

2023 outlook: High order growth in revenue, the company continues to pursue high-quality development, driving OPM to increase 30-50 bps year-on-year. With the deregulation of the epidemic, the rapid reshaping of consumption scenarios and the gradual recovery of consumer confidence, Mengniu will accelerate the launch of new products, seize opportunities for channel repair, strengthen integrated online and offline promotion, and achieve accelerated revenue growth. On the revenue side: Excluding Wonke's share, the high order growth in the company's endogenous revenue is expected in 2023, mainly due to: 1) a steady increase in white milk; 2) a rapid increase in fresh milk and cheese; 3) restorative growth in milk drinks, yogurt, and milk powder; 4) cold drinks will continue to maintain a good growth momentum. On the profit side, the company mentioned during the performance exchange meeting that it will make efforts to increase OPM by 30 to 50 bps, mainly due to improved product structure, contraction in promotion costs, and increase in gross margin due to falling raw milk prices.

Risk factors: food safety risks; risk of policy changes; risk of rising raw materials; risk of declining industry sentiment, etc.

Investment advice: Considering the slow recovery in demand for dairy products, the company's 2023/2024 EPS forecast was lowered to 1.57/1.90 yuan (the original forecast was 1.64/1.94 yuan), and the new 2025 EPS forecast was increased to 2.27 yuan. Among them, we forecast Mengniu's endogenous income/net profit to the mother in 2023 to be 99 billion yuan/6 billion yuan respectively, +7.4%/13.1% year on year. Referring to the comparable company's 2022 Yili Stock 17x and New Dairy's 28x PE valuation (wind consistent expectations), considering the company's leading position in the market, the company was given 25 times PE forecasted net profit in 2023, corresponding to the target price of HK$45, maintaining the “buy” rating.