Key points of investment
22 Decline in birth rate+fresh strategic adjustment channels. Inventories have returned to benign companies to achieve revenue of 21.31 billion yuan (-6.4%) in '22, net profit of 4.94 billion yuan (-28.1%); 22H2 achieved revenue of 11.64 billion yuan (+3.6%), and Guimo's net profit of 2.69 billion yuan (-14.2%). Looking at products by product in '22, infant formula, other dairy products/nutritional supplements achieved revenue of 199.3/1,15/230 million yuan respectively, compared to -7.4%/+16.4%/-16.6%, accounting for 93.5%/5.4%/1.1% respectively. It is expected that infant formula will resume positive growth in 23 years, and adult formula will continue to grow rapidly.
We expect a slight decrease in gross margin of 23 plus a reduction in promotions. In terms of net interest or a relatively stable gross margin, the gross profit margin for the full year of '22 is 65.5%/63.7%, year-on-year -4.8pct/-3.5pct. By product, the gross margin of infant formula/other dairy products/nutritional supplements in '22 is 68.8%/12.4%/41.9% respectively, compared to the same period in '21 -12.0pct/-49.3pct/-31.4pct. The decline in gross margin in '22 was mainly due to restructuring of infant formula products, underutilization of production capacity, and rising milk source costs. Considering that the gross margins of Starfeifan Zhuo Rui and adult fans, which are expected to increase significantly in '23, are both lower than the previous big single product classic Starfeifan, it is expected that as the product structure continues to be adjusted, gross margin may decline slightly in '23.
In terms of expenses, the company's sales and distribution expenditure/administrative expenditure/other expenditure/financial costs for the year 22 were 65.4/15.4/14/0.3 billion yuan respectively, -2.7%/+27.1%/+51.1%/+15.4%; corresponding expense rates were 30.7%/7.2%/0.6%/0.2%, and +1.2pct/+1.9pct/+0.2pct/+0.2pct/+0.2pct/+0.1pct. The increase in sales expenses was mainly due to reduced activity costs and lower publicity expenses. The increase in the cost rate was mainly due to a decrease in the birth rate and freshness. The strategy led to a decrease in revenue. Considering that product formulations and functions that are expected to increase in 23 will be more powerful, it is expected that promotional sales will be on a downward trend. Combined with the judgment on gross margin, we think net interest rates are expected to remain stable in '23.
In terms of production capacity, after the launch of the Harbin plant in '22, the total design production capacity was expanded to 307,000 tons. It is estimated that the completion of the construction of the Qiqihar plant in '23 will add 20,000 tons of production capacity; the accumulation of channel inventory in '22 affected the capacity utilization rate. Currently, the company's channel inventory level is good, which will help drive the further release of production capacity.
The foundation was established in '22, and the promotion of new products and new categories helped the fundamental trend in '23 improve. In '22, Feihe adopted a strategy of reducing inventory+stabilizing price+freshness in an industry context such as declining birthrate+disrupted epidemic+intensified industry competition. 22H2 launched new national standard products such as Xingfeifan Zhuo Rui and Xingfeifan Zhuo Yao, which is expected to turn Zhuo Rui into the second largest single product. At the same time, it is possible to promote adult milk powder. Along with channel optimization and adjustment, it is determined that the company's fundamental trend will improve in '23.
Profit forecasting and valuation
The company's revenue for 2023-2025 is estimated to be 234.9, 258.5, and 28.44 billion yuan respectively; the net profit of the mother is 545, 5.97 and 6.52 billion yuan respectively; EPS is 0.60, 0.66, and 0.72 yuan/share; maintaining the purchase rating.
Risk warning
Market competition intensifies; raw material costs fluctuate; birth rates continue to decline