1H23 performance is in line with market expectations
The company announced 1H23 results: revenue of 199 million yuan, +16.13%, net profit attributable to mother of 0.3 million yuan, year-on-year net profit of -30.34%, net profit of non-attributable net profit of 0.3 million yuan, -36.50%; 2Q23 revenue of 111 million yuan, +16.10%, net profit of 210 million yuan, year-on-year, -23.36%, net profit of non-attributable income of 115 million yuan, year-on-year, -29.14%. The 2Q23 results were in line with market expectations.
Development trends
DHA business and major domestic customers grew strongly in the first half of the year, and overseas business was disrupted. 2Q23's revenue was +16.1% year-on-year, continuing the 1Q23 growth trend. Overall, in the first half of the year, DHA revenue increased by more than 80% year on year, and the performance was strong. Its share of revenue increased by nearly 10ppt to about 23% year on year. In addition, animal nutrition and beauty businesses also increased significantly (for example, animal nutrition income also increased by 30%). Currently, the two together account for about 5-6% of total revenue. From a customer perspective, the revenue of some major domestic customers increased significantly. For example, the sales volume of Feihe and Yili ARA increased 80% and 60% year-on-year, respectively, mainly due to the incremental contribution of the new national standard and the increase in the company's share of customers. For overseas customers, due to delays in the registration of the new national standard, overseas revenue was under year-on-year pressure in the first half of the year, and there was a marked improvement in 2Q compared to 1Q. Moreover, the registration of the new national standard has now been basically completed. We expect that overseas revenue will gradually improve in the future.
2Q23 gross margin improved from 1Q to 1Q, and 2Q profit was dragged down by asset and credit impairment losses. 2Q23 The company's gross margin was -0.7 ppt to 43.2% year on year, and the decline was significantly narrower than 1Q, and 4.8 ppt from 1Q, mainly due to the increase in sales share of overseas customers with high gross margin in 2Q; in terms of rates, 2Q sales and management rates were -0.5ppt and -0.9ppt respectively, thanks to better management and scale effects of the company's expenses; the R&D rate was +0.5ppt, mainly due to the company's emphasis on R&D investment. In 2Q23, based on prudent accounting, the company's bad debt reserves and inventory price losses increased; overall, in 2Q23, the company's net interest rate was -9.5 ppt to 18.5% year on year, leaving the profit growth rate still under pressure.
2H23 operations are expected to improve month-on-month, and focus on subsequent overseas customer business developments. Overall, 1H23's revenue was disrupted by multiple factors and was lower than expected at the beginning of the year, but with overseas customers' new national standard registration now basically completed and new production capacity put into production, we expect the company's revenue performance may improve starting from 2H23.
Looking ahead to 2H23, we expect that additional depreciation and price reductions may still have an impact on gross margin, but if subsequent revenue volume increases and the share of high gross margin overseas revenue increases, gross margin may continue to perform well in 2Q; considering the revenue scale effect, we expect rates to decline. 2H23 suggests focusing on the business progress of the company's overseas customers, and focusing on the development of algae oil, DHA, and new products such as HMO in the medium to long term.
Profit forecasting and valuation
Considering weak demand, the 2023/24 net profit forecast was lowered by 16.2%/11.1% to 11/150 million yuan. The company's current transaction is 34/25 times the P/E for 2023/24; due to stock increases and profit forecast reductions, the target price was lowered by 25% to 30 yuan. Excluding changes in share capital, it was lowered by 5%, corresponding to 47/35 times P/E in 2023/24 and 38% upward space, maintaining the outperforming industry rating.
risks
Competition is intensifying, overseas and new business expansion falls short of expectations, and customer concentration is high.