On August 24, 2023, Tianrun Dairy released the 2023 semi-annual report.
Key points of investment
The performance was in line with expectations, and the merger of Xinnong dragged down Q2 profits
2023H1 had revenue of 1,389 million yuan (same increase of 13%) and net profit of the parent group was 126 million yuan (same increase of 17%). The performance was in line with expectations. The gross profit margin for the first half of the year was 20.55% (same increase of 2 pct); net interest rate of 9.41% (same increase of 0.4 pct); sales expense ratio of 5.36% (same decrease of 0.2 pct); management expense ratio of 3.02% (same increase of 0.1 pct); operating tax and additional share of 0.56% (same increase of 0.1 pct); net cash flow from operating activities was 100 million yuan (same decrease of 34%), which is a decrease in student milk business repayments and an increase in forage reserves. Among them, in 2023Q2, revenue was 758 million yuan (same increase of 10%), and net profit of returned mother was 71 million yuan (same decrease of 2%). Xinnong Dairy's merger in June 2023 dragged down the profit side. The gross profit margin was 20.97% (same increase of 2 pct), net interest rate of 9.72% (same decrease of 1 pct), sales expense ratio of 5.18% (same increase of 0.1 pct), management expenses ratio of 3.05% (same increase of 0.4 pct), and sales tax and surcharges of 0.55% (same increase of 0.1 pct).
Exploration outside the border is accelerating, and nationalization continues to expand
By product, 2023H1 room temperature dairy products/low temperature dairy products/animal husbandry products/other products revenue was 7.8/5.61/0.41 billion yuan, compared to +20%/+5%/-7%/-34%; of these, 2023Q2 revenue was 427/3.15/0.12/02 billion yuan, respectively, +19%/+5%/-53%/-42%. By channel, 2023H1 distribution/direct sales revenue was 1,214.172 million yuan respectively, an increase of 11%/24%; of these, 2023Q2 revenue was 674/83 million yuan, an increase of 10%/8%. Looking at the subregion, 2023H1's revenue within and outside of China was 769/617 million yuan, an increase of 7%/20%; of these, 2023Q2 revenue was 395/361 million yuan, an increase of 6%/14%. By the end of 2023H1, there were a total of 865 dealers, a net increase of 139. The company bought 100% of the shares in Xinnong Dairy with cash, expanded the proportion of the company's own milk sources and dairy product processing production capacity, and at the same time filled gaps in the milk powder business and expanded its market share outside of the country on the basis of consolidating domestic advantages.
Profit forecasting
We see that the company has consolidated its position as a leader in dairy products in the domestic market, and that expansion outside of the country continues. According to the interim report, we slightly adjusted the 2023-2025 EPS to 0.80/0.96/1.15 yuan (previous value was 0.78/0.94/1.12 yuan). The current stock price corresponds to PE 18/15/13 times, respectively, maintaining the “buy” investment rating.
Risk warning
The risk of a downturn in the macroeconomic economy, the risk of rising raw materials, growth of low-temperature products falling short of expectations, further intensification of competition, etc.