Core views
In the first half of the year, the company continued to develop key markets, intensively cultivate key channels. The growth rate of liquid milk sales increased, while other products (cold drinks, etc.) achieved rapid growth. In the first half of the year, it achieved revenue of 14.139 billion yuan, a year-on-year decline of 1.88%. Driven by the scale effect of the high increase in sales of products such as cold drinks, the overall gross margin level has increased. The company's net interest rate to parent increased 0.44 pcts to 2.39% year-on-year in the first half of the year.
The company promotes the layout of milk sources to ensure the implementation of the “fresh” strategy, and continues to promote marketing and new product development. With the gradual resumption of residents' travel, etc., the low-temperature fresh milk consumption scenario is expected to continue to recover. Combined with the continuous decline in raw milk prices since the beginning of the year, the company's profit level is expected to return to the right track in 2023.
occurrences
On August 28, the company released its 2023 annual report: In the first half of the year, it achieved revenue of 14.139 billion yuan, a year-on-year decrease of 1.88%, a year-on-year decrease of 1.88%, achieved net profit of 338 million yuan, an increase of 20.07% over the previous year, after deducting non-return net profit of 317 million yuan, a year-on-year increase of 31.03%. Among them, we achieved revenue of 7.068 billion yuan in a single second quarter, a year-on-year decrease of 1.34%, and realized net profit of 151 million yuan, an increase of 30.14% over the previous year, after deducting non-return net profit of 142 million yuan, an increase of 39.00% over the previous year.
Brief review
Consumption of liquid milk has recovered, and cold drink products are growing rapidly
As the economy recovers and consumption recovers, the company continues to focus on key markets, carefully cultivate key channels, and the growth rate of liquid milk sales has increased. Other products (cold drinks, etc.) achieved rapid growth. Revenue for the first half of the year was 14.139 billion yuan, down 1.88% year on year. Of these, revenue for the second quarter was 7.068 billion yuan, down 1.34% year on year. By business, in the first half of the year, the company's liquid milk, other dairy products, animal husbandry products, and other segments achieved revenue of 80.05, 41.89, 10.53, and 810 million yuan, respectively, with a year-on-year ratio of +3.11%, -5.10%, -27.21%, and +26.37%. Among them, revenue for the single second quarter was 39.34, 20.37, 5.77, and 475 million yuan, respectively, +5.35%, -9.80%, -23.55%, +36.38%.
By region, Shanghai, and overseas achieved revenue of 39.76, 63.18, and 3,762 billion yuan in the first half of the year, compared to +1.72%, -4.53%, and +0.64%. Of these, revenue for the single second quarter was 2,027, 3,095, and 190 billion yuan, and +11.08%, -2.77%, and -8.93% year-on-year. Revenue in the Shanghai region continued to recover from a low base level in '22.
Looking at sales models, in the first half of the year, the direct management and dealer models achieved revenue of 32.76 billion yuan and 10.683 billion yuan, or -7.36% and +0.30% year-on-year. Of these, the single second quarter achieved revenue of 1,636 billion yuan and 5.340 billion yuan, -5.90% and +0.15% year-on-year. The direct management model continues to decline, and the dealer model remains stable.
The scale effect of products such as cold drinks led to an increase in gross margin. Expense investment was strengthened in the second quarter, and the price of raw milk fell in the first half of the year. Under pressure on overall consumption, the profit level of liquid milk faced some pressure. However, driven by the scale effect of the high increase in sales of products such as cold drinks, the overall gross margin level has increased. The company's gross margin increased by 1.01 pcts to 20.12% year-on-year in the first half of the year, and gross margin increased by 1.86 pcts to 20.28% in the single second quarter. In terms of expenses, the company's sales expenses rate for the first half of the year was 12.16%, down 0.02 pcts from the previous year; of these, the sales expenses rate for the second quarter was 12.55%, an increase of 1.51 pcts over the previous year. Management expenses, on the other hand, increased as employee remuneration and expenses increased. In the first half of the year, the management expenses rate was 3.37%, an increase of 0.65 pcts over the previous year. Under the trend of increasing gross margin, the company's net gross margin increased 0.44 pcts to 2.39% year on year in the first half of the year, and net gross margin increased 0.52 pcts to 2.13% year on year in the single second quarter.
Strengthen the layout of the animal husbandry industry and consolidate the “fresh” strategic foundation, continue to promote marketing and new product development companies as the number one fresh milk brand in China, and continue to promote the layout of milk sources to ensure the implementation of the strategy. In the first half of the year, the company completed construction of projects in Zhongwei in Ningxia, Funan in Anhui, Huaibei in Anhui, Hachuan Phase II, and Jinshan. Among them, projects in Zhongwei in Ningxia and Funan in Anhui were accepted. **** Animal Husbandry's many indicators, such as the health level of cows, the quality of fresh milk, and the yield of dairy cows, have reached the best level in history. It also promotes supply chain optimization, and won the title of “2022 National Supply Chain Innovation and Application Demonstration Enterprise” in February 2023. In terms of marketing, the company exclusively named CCTV's “China in the Book of Classics” for the second season, and continues to enhance its brand power by collaborating with China's lunar exploration project, etc. The product side also continued to launch new products. In the first half of the year, 30 new products were developed and launched to meet the diverse needs of consumers.
Profit forecast: The company is expected to achieve revenue of 301.2, 336.7, and 37.48 billion yuan in 2023-2025, net profit of 631, 727, and 821 million yuan, corresponding EPS of 0.46, 0.53, and 0.60 yuan, and corresponding PE of 23X, 20X, and 17X.
Risk warning:
1. Remediation risk is lower than expected: Since the beginning of the year, residents' travel has continued to increase, and the dairy sales scenario has gradually recovered. If the return of traffic in the sales scenario falls short of expectations, it will affect the product sales of dairy companies.
2. Risk of a rapid rise in the price of raw milk: Direct ingredients account for a relatively high proportion of dairy costs, of which raw milk and milk powder account for a relatively large share. In recent years, the main importers of raw milk have gradually reduced production capacity, compounded by the high cost of feed. If the cost of raw milk rises above expectations, it will affect the profit level of enterprises.
3. The degree of slowing competition is lower than market expectations: increased competition among dairy companies will lead to a continuous increase in market expenses such as advertising and promotion, which will affect the profit level of enterprises.