Performance review
1H23 performance is in line with our expectations
The company announced 1H23 results: year-on-year revenue of single 2Q23 is-4.2%, of which we estimate that revenue of compound business is-27%, probiotics business is + 31%, and net profit of home return / deduction of non-home net profit is-5.1% and 16.1% respectively. Gross profit margin / sales expense rate / management expense rate / return net profit margin / non-return net profit margin + 1.2/+3.3/+0.5/-0.3/-3.0ppt respectively compared with the same period last year. This performance is in line with our expectations.
Trend of development
Probiotics business has become the company's largest business sector, is driving the company's performance growth. The proportion of probiotic revenue increased as scheduled, from 34.3% of 1H22 to 61.9% of 1H23. While the volume grew rapidly, the gross profit margin of probiotic business remained high. 1H23's gross profit margin reached 63.8%, year-on-year + 0.7ppt, driving the overall gross profit margin compared with the same period last year + 1.08ppt. As the sales and promotion of probiotics business is more difficult than before (the impact of the epidemic gradually fades), the competition in the superposition industry is slightly intensified, so the cost-side 2Q23 sales expense rate is year-on-year + 3.3ppt. But looking to the future, we believe that the market for probiotics is still broad. Euromonitor predicts that the industry size of the probiotic track in the next five years may reach 12%. At the same time, the company is actively expanding the coverage of probiotic business, such as extending to animal probiotics. According to the company announcement, the company has partnered with Xin Ruipeng, and the new plant in the animal and plant microecological preparation section of the fund-raising project is expected to be put into use in 4Q23. The company's production capacity can also support rapid growth in its active expansion. the company expects that the R & D and production base of the food sector will add 10000 tons of food ingredients, 400 tons of probiotic raw material powder, 100tons of yoghurt starter, 600tons of epigenetic yuan and 1200 tons of probiotic terminal consumer goods.
2Q23 compounding business is still under great pressure, mainly following the simultaneous development of yoghurt business with major customers. We estimate that the operating income of 2Q23 compounding business is-27% year-on-year, which is narrower than that of 1Q. The gross profit margin of 1H23 compounding business is year-on-year-14.4ppt (the rapid development of probiotics business has offset the decline of gross profit margin). The overall pressure of compounding business is still large, which we believe is mainly due to the simultaneous development of yoghurt business with major customers.
Profit forecast and valuation
Due to the weaker-than-expected recovery in consumer fundamentals and the lower-than-expected growth rate of probiotics business, we lowered our net profit by 13.2% and 25.6% in 2023 and 2024 to 112 million yuan and 139 million yuan. Using the SOTP valuation method, due to the downward adjustment of fundamental expectations, the target price corresponds to 16.1% to 17.67 yuan after the reduction, and the target price corresponds to 2023 / 2024 42max 33x Pmax E, and the current stock price corresponds to 39max 32x Pmax E, which has 5.9% upside space compared to the target price, maintaining the industry rating of outperforming.
Risk
Management reduction, probiotic demand growth sustained less than expected, compounding business decline more than expected, probiotic competition intensified, customer expansion is not as expected, customer concentration is high, food safety problems.
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