1Q23 performance is in line with our expectations
The company announced 1Q23 results: 1Q23 revenue was 3.7 billion yuan, -2.0% year on year; gross margin reached 48.6%, 0.8ppt year on year; and the return mother's net profit was 79.38 million yuan, corresponding to profit of 0.17 yuan per share, 7.8% year on year. 1Q23 The company's revenue was slightly lower than our expectations. Mainly due to the impact of the epidemic on January consumption scenarios and continued pressure on high-end products, the company's profit was basically in line with our expectations.
Development trends
As a result of restricted consumption scenarios, the overall sales situation of products and channels in Zhejiang and Jiangsu declined, and the Shanghai region gradually recovered. The company's 1Q23 revenue was -2.0% year on year, mainly due to the Zhejiang (revenue accounting for 63.9% of the total) /Jiangsu (revenue accounting for 9.4% of the total) regional revenue of -8.49%/-12.28%, corresponding to a 47/13 decrease in the number of dealers in the Zhejiang/Jiangsu region, respectively, while the company performed well in Shanghai. 1Q23 revenue (revenue accounts for 18.1% of the total) was +20.64% year on year. The company's revenue in 1Q23 (revenue accounted for 18.1% of the total) was +20.64% over the same period last year. We think the 1Q23 revenue pressure was due to limited consumption scenarios, but the year-on-year decline was narrower than in 2022. Structurally, mid-range and high-end products continue to be under pressure, but marginal optimization has already been achieved. In 1Q23, the revenue of ordinary rice wine/middle and high-end rice wine was +2.44%/-2.98% year on year. The trend of regular rice wine restoration process was faster than that of high-end rice wine continued, but the year-on-year decline in sales revenue of medium and high-end rice wine was narrower compared to 2022 (sales revenue of high-end rice wine in mid-2022 compared to -6.45% year on year). Subsequent companies will welcome benefits such as the restoration of high-end social scenarios and an increase in consumer income on the basis of a low base in the base market.
The net interest rate of 1Q23 has begun to improve under the influence of gradual easing of cost pressure and the leveling of expenditure investment.
Driven by declining costs of packaging materials and winemaking materials such as rice and corn, the company's 1Q23 gross margin increased 0.8ppt year on year; at the same time, the 1Q23 sales expense rate/management expense ratio was -0.7/+1.1ppt, respectively. The overall cost ratio was the same as the same period last year. Combined with the gradual easing of cost pressure, the company's net interest rate increased 0.6ppt.
Profit forecasting and valuation
We maintained our 2023/2024 earnings forecast of $166/181 million, an increase of 14.7%/9.1% over the same period. We maintain a target price of 11.80 yuan, which has 1.5% upside compared to the current stock price; the target price corresponds to 34.1/31.3 times P/E of 2023/2024, and the current stock price corresponds to 33.6/30.8 times P/E of 2023/2024, maintaining a neutral rating.
risks
The company's restructuring fell short of expectations, causing operating risks in the main business; scenario recovery was slower than expected; raw material costs fluctuated; if revenue in Zhejiang, a niche market, declined, expansion outside the province would also be under pressure; food safety.