On April 19, 2023, Junyao Health released the 2022 Annual Report and the 2023 Quarterly Report Forecast.

Key points of investment

Profits are under pressure in the short term, and recovery accelerated in 2023

Revenue of 2022 was 996 million yuan (same increase of 7.94%), net profit of Fumo was 777 million yuan (same decrease of 47.87%); of this, total revenue of 202Q4 was 141 million yuan (same decrease of 33.74%), and net profit of Gimu was 0.2 million yuan (same decrease of 176.65%). Total revenue for 2023Q1 is expected to be 423-468 million yuan (same increase of 92.7-112.98%), and net profit of the mother is expected to be 0.23-025 million yuan (same increase of 25.73-38.96%). Post-pandemic performance will rebound at an accelerated pace. Gross margin was 35.64% in 2022 (same decrease of 5 pct) due to rising raw materials and labor costs, of which 2022/Q4 was 49.51% (same increase of 16 pct).

The sales expense ratio was 18.96% in 2022 (same increase of 1 pct), of which 2022Q4 was 37.28% (same increase of 12 pct), due to increased promotional expenses and the merger of the pan-edge supply chain. The management fee rate was 8.27% in 2022 (same decrease of 0.02pct), of which 2022/Q4 was 15.45% (same increase of 3 pct). Net interest rate in 2022 was 7.43% (same decrease of 9pct), of which 202Q4 net interest rate was -3.63% (same decrease of 5 pct).

Net cash flow from operating activities in 2022 - $284 million (down 258% from the same period).

The main business is recovering at an accelerated pace, and a second curve can be expected

By product, the revenue of lactic acid bacteria drinks/probiotic drinks/probiotic foods/other drinks/other drinks/beverage supply/beverage supply chain/other commodity supply chain in 2022 was 6.5/0.3/0.5/0.7/1.4/0.1 billion yuan respectively, compared with -14%/+42%/+43%/-31%, accounting for 69%/3%/5%/7%/15%/0.1%. The main business was affected by the epidemic and rising raw material costs in the short term. As post-epidemic consumption scenarios recover and price increases are implemented, it is expected that there will be marginal recovery. With the company's vigorous development, the probiotic series has achieved relatively rapid growth, which is expected to optimize the product structure and enhance profitability. The decline in other beverages was mainly due to the company's discontinuation of flavodynamic prebiotic milk products. By channel, distribution/direct sales revenue in 2022 was 87/76 million yuan, +2%/+35% year on year, accounting for 88%/8%. As of fiscal year 2022, there were 1,229 dealers, a decrease of 186 from the beginning of the year. Looking at the subregions, the revenue for e-commerce in 2022 was 0.4/0.2/0.1/5.6/0.1/5.6/0.5/1.8/0.1/0.1/0.6 billion, respectively, compared to +46%/-5%/+17%/-5%/-5%/-22%/+9%/-7%, accounting for 4%/2%/1%/57%/5%/19%/1%/6%, respectively. Looking at the volume and price breakdown, sales of lactic acid bacteria drinks/probiotic drinks/probiotic foods/other drinks were 9/0.3/36/13,000 tons, respectively, -16%/+27%/+29%/-25%; corresponding ton prices were 0.7/1/0.01/60,000 yuan/ton respectively, +3%/+12%/+11%/-8% over the same period last year. 2023 development strategy: 1) The lactic acid bacteria business is profit-oriented, focuses on accurate channel delivery, and upgrades products through the application of patented strains. The goal is to achieve an average growth rate of room-temperature lactic acid bacteria drinks higher than the industry average by the end of 2025, and their market share is the highest in the country. 2) The probiotic business accelerated the completion of Runying's restructuring, and the BC side progressed simultaneously.

Profit forecasting

EPS for 2023-2025 is expected to be 0.48/0.71/1.04 yuan, and the current stock price corresponding to PE is 30/20/14 times, respectively, maintaining the “buy” investment rating.

Risk warning

Macroeconomic downturn risks, increased market competition risks, rising costs, probiotic market growth falling short of expectations, Runying's integration falling short of expectations, etc.