Incident: The company released its semi-annual report for 2023 on August 24. 23H1 achieved revenue of 1,389 million yuan, an increase of 12.62%; realized net profit of 126 million yuan, an increase of 16.55%; net profit of 117 million yuan, a total increase of 21.05% after deducting non-return net profit of 117 million yuan. In the second quarter alone, the company achieved revenue of 758 million yuan, an increase of 9.77%; realized net profit of 71 million yuan, a decrease of 2.45%; net profit of non-attributable income was 68 million yuan, an increase of 5.16%.
Room temperature products continue to grow, and the growth rate outside of the country has slowed. The company achieved revenue of 1,389 million yuan in the first half of the year, an increase of 12.62%, and achieved revenue of 758 million yuan in a single second quarter, an increase of 9.77%. By product, the company achieved revenue of 427 million yuan for 23Q2 room temperature products, accounting for 56.44% of products, an increase of 16.84%; low temperature products achieved revenue of 315 million yuan, accounting for 41.65% of products, an increase of 4.96%. By channel, the 23Q2 internal market achieved revenue of 395 million yuan, an increase of 5.86%; the external market continued to gain strength and contribution. The company focused on key markets, listed Shandong, Guangdong, and Jiangsu as the focus market, and upgraded Shanghai to nurture markets. 23Q2 achieved revenue of 361 million yuan, a year-on-year increase of 14.03%. The growth rate outside of the country declined year-on-year due to increased market competition.
Production capacity in Shandong is about to be completed, and Beijing-Tianjin-Hebei Province are expected to contribute additional volume. In terms of dealers, in 23Q2, the domestic and foreign markets increased by 27 month-on-month and 119, bringing the total number of dealers to 865 at the end of the period. In '23, H1, the company achieved sales volume of 146,400 tons of dairy products, an increase of 6.71%. By the end of 23H1, it had opened 859 Tianrun specialty stores. The company continues to promote production capacity expansion plans. The Shandong Tianrun Qiyuan dairy processing project is scheduled to be put into trial operation in October '23. The company will set up a Shandong sales branch, which will be centered around Qihe in Shandong, covering markets such as the surrounding Beijing-Tianjin-Hebei region; differentiated use of the company's sub-brand “Jiali”, has now connected with the local government in Shandong, some state-owned enterprises and supermarkets. In addition, the future 200,000 ton dairy processing capacity project is planned to guarantee the company's long-term expansion space.
Farming cost pressure affects short-term performance, and upstream layout makes up for shortcomings. The cost of raw milk in Xinjiang continued to decline. In the first half of '23, the company achieved a gross profit margin of 20.55%, an increase of 2.42 pcts; 23Q2 achieved a gross profit margin of 20.97%, an increase of +2.11 pcts. The pace of cost investment remained stable in the first half of the year, with a sales expense rate of 5.36%, a decrease of 0.20 pcts; a management fee rate of 3.02%, an increase of 0.08 pcts; the company's 23H1 net interest rate was 9.41%, an increase of 0.41 pcts; 23Q2's net interest rate was 9.72%, a decrease of 1.02 pcts. In '23, the price of raw milk on the H1 supply side continued to decline, and the cost of raising in the animal husbandry industry remained high. The company invested in the premium herding industry and laid out the upstream forage cultivation business for animal husbandry. In the future, it is expected to make up for shortcomings in forage supply and ease the pressure on animal husbandry farming.
Investment suggestions: The company is a leading dairy company controlled by the Inner Army. It maintains a growth trend at room temperature, and has a stable basic market at low temperatures. After acquiring 100% of the shares in Xinnong Dairy, it further increased the proportion of its own milk sources and dairy processing production capacity. The expansion of production capacity continued, and is expected to further consolidate its leading position within the country and increase its market share outside of the country.
We expect the company's revenue for 23-25 to be 27.3/31.7/3.76 billion yuan, net profit for the parent to be 2.4/30/370 million yuan respectively, and the corresponding P/E for the current stock price to be 17/14/11X respectively, maintaining the “recommended” rating.
Risk warning: risk of upstream milk supply; increased competition for expansion outside the country; food safety issues, etc.