Incidents: ① The company's revenue in 2022 was 26.439 billion yuan, +5.08% year on year, net profit of 744 million yuan, +43.14% year on year; the company's proposed dividend in 2022 was 2.6 yuan (tax included) for every 10 shares, with a total dividend of 556 million yuan; ② the company's 2023Q1 revenue was 4.797 billion yuan, -1.52% year on year, and Guimo's net profit was 274 million yuan, +19.42% year on year.
National Document No. 1 strengthens the deployment of the sugar industry, and the company's position to guarantee sugar safety has been further strengthened.
Document No. 1 of 2023 proposed “continuing to implement a technical promotion subsidy policy for sugar cane cultivation”, which emphasized the direction of industrial upgrading compared to previous guidance on income security futures insurance and stable production. The COFCO Group undertakes the task of food security in China. It is a leader in the domestic sugar industry in the sugar cane and sugar beet production fields, laying out the entire sugar industry chain. In 2022, the company's sugar business volume reached 4.65 million tons, accounting for 31% of the country's total consumption, further consolidating its leading position in the industry.
Benefiting from the sugar trade business, the company may face the opportunity of double profit growth
In 2023, production cuts in major sugar-producing countries such as Thailand, India, and China in the northern hemisphere were gradually verified, while Brazil in the southern hemisphere still maintains expectations of abundant production, and international sugar supply may be expected to ease in the second half of the year. Domestic production is mainly expected to decrease in Guangxi. If the reduction in domestic sugar production is combined with a recovery in consumption and import demand expands, domestic and international sugar prices have risen rapidly since the beginning of '23. The average price of domestic Zheng Sugar and International ICE11 sugar prices in April was 6,751 yuan/ton, 24.1 cents/pound, up 17.5% and 28.0% year-on-year from the average price in '22. The company's sugar product sales prices will rise rapidly. According to our analysis, at present, China's production reduction has basically been decided. If abundant production from overseas Brazil is gradually realized, the second half of the year will form a pattern of high domestic sugar import demand and a gradual easing of foreign sugar supply. The inversion in the company's trade profits is expected to be repaired, and it is expected that there will be a double increase in quantitative profit!
Strengthen transformation and upgrading, and drive growth through brand innovation
2022 is the “first brand year” for COFCO Sugar. The company firmly implements the new development concept and actively improves its ability to cross the industry cycle and enhance market-based management capabilities. Strategically, brand development is promoted through active research on professional brand plans for sugar and tomatoes; in terms of products, the focus on high-end baking, blending and functional sugar has been achieved to upgrade and iterate on innovative C-side products; in terms of marketing, a new media combo punch is launched, and a new model combining production, marketing and research has been achieved to achieve innovation-driven growth: not only has the overseas sugar business entered the Japanese market, profitability has increased significantly, and the market share of the high-end market has increased through the core indicators of baked sugar.
Investment advice: We expect the company's revenue for 2023-2025 to be 28.401 billion yuan, 30.513 billion yuan, 32.191 billion yuan, an increase of 7.42%, 7.44%, and 5.50%; Guimu's net profit is 1,115 million yuan, 971 million yuan, and 1,070 million yuan, an increase of 49.95%, -12.93% and 10.17% over the previous year. We believe that in the current context of high global sugar prices, the company's profits are expected to increase and maintain its “buy” rating.
Risk warning: risk of policy changes; risk of fluctuations in sugar prices; risk of exchange rate changes; risk of supply of raw materials; risk of the international situation.