The 2022 results are in line with our expectations

The company announced its 2022 results: revenue of 20.97 billion yuan, +6.0% year on year; Guimu's net profit was 660 million yuan, +15.3% year on year. Corresponds to 2H22 revenue +5.9% year on year, and net profit of the mother is +6.2% year on year, which is in line with our expectations.

Development trends

2H22 sales continued to grow steadily, and profitability performance was good. 2H22's revenue was +5.9% year on year, and the overall growth trend continued. Looking specifically at soft drinks: 2H22 soft drink revenue was +6.3% year over year, which accelerated slightly from the first half of the year. Revenue growth was mainly due to ASP increases and product structure improvements. Considering that the price increase affected more than 2H22's reflection, and the relatively conservative price strategy of competing products, we believe that relatively stable sales highlighted the company's competitive advantage; juice: juice: 2H22 revenue +15.7% year-on-year, continuing the strong growth momentum of the first half of the year. The main reason was the increase in overall popularity of the juice category and the return of juice to the source of juice 450ml Bringing the classic bottle shape Sales rebounded; packaged water: 2H22 revenue was -11.0% year on year, and the pressure was still obvious. Mainly due to high PET prices and transportation costs, the company actively controlled the sales price list and scale of ice and dew, while Chunyue's brand strength still supported sales relatively weak; furthermore, RTD Coffee still recorded good sales performance under continuous product promotion.

Although the price of raw materials such as PET remained high on the cost side of 2H22, the gross margin of 2H22 remained at a good level of 35.1% under the company's successful price-locking operation and resolute price increase; the gross sales margin was still +0.1ppt to 7.7% year-on-year, which collectively resulted in 2H22's net profit of +6.2% compared to the previous year, significantly exceeding the overall performance of the industry.

Sales may continue to grow steadily in 2023, moderately reduce promotional margins to hedge against fluctuations in raw material prices, and profitability is expected to be maintained. We expect the company to maintain steady growth in the number of units in 2023, mainly considering that the recovery in the consumption scenario brings overall benefits, and that after the impact of price increases stabilizes, soft drink sales are expected to return to the upward trajectory, while the increase in Sleek Can's share and continued specification segmentation are expected to provide steady revenue growth; juice is also expected to continue to grow well, driven by new products. Other products such as coffee and energy drinks also have great potential for development. Furthermore, on the channel side, the company has expanded 1 million new outlets in the past 2 years (1.6 million outlets in the same period in 2020), and we expect that there is still considerable room for improvement in the single-order output of new networks to support revenue growth. The company expects that the cost side of 1H23 may be under slight pressure, mainly due to the low base due to the successful price lock of 1H22, and recent fluctuations in sugar prices. The company may moderately reduce promotions to hedge against fluctuations in raw material prices. As the cost rate continues to be steady, we expect the company's profitability to remain at a level similar to that of 2022.

Profit forecasting and valuation

The company is currently trading 9.4/8.5 times the 2023/24 price-earnings ratio. We basically maintained our 2023/24 profit forecast of $74/80 million and kept the target price of HK$3.8 unchanged, corresponding to 12.1/11.0 times the 2023/24 price-earnings ratio and 29% upward space. Maintain an outperforming industry rating.

risks

Prices of raw materials have remained high, and competition has intensified.