23H1 Net profit is growing steadily, and short-term revenue is under pressure
The company released its semi-annual report for 2023. 23H1 revenue/net profit attributed/net profit minus non-net profit of 141.4/34/320 million, YoY -1.9%/+20.1%/+31.0%; 23Q2 revenue/net profit attributed/net net profit minus non-net profit of 70.7/1.5/140 million, -1.3%/+30.1%/+39.0%. 23Q2 The revenue growth rate of liquid milk improved month-on-month. The base camp, Shanghai, achieved a recovery in revenue growth against the backdrop of a low base last year; the milk powder business created new momentum for growth, and the three infant formula models kicked off a new journey through a new national standard; the company continued to promote milk source construction outside the province and lay out customized business layout to enable the implementation of a national strategy. On the profit side, the trend of easing cost pressure/improving investment efficiency is expected to continue, and the company's profitability may improve. We expect the EPS to be 0.49/0.56/0.66 yuan in 23-25. Referring to comparable companies' average PE of 25x in 23 (Wind's unanimous expectation), we will give 25x PE in '23, with a target price of 12.25 yuan to maintain the “increase in holdings.”
The revenue growth rate of Q2 liquid milk continued to improve month-on-month. The growth rate of the base market came back positive. Looking at products, 23H1 liquid milk/other dairy products/animal husbandry products had revenue of 8.0.0/41.9/1.05 billion, +3.1%/-5.1%/-27.2%, 23Q2 +5.4%/-9.8%/-23.5%. As consumer demand steadily recovered, the revenue growth rate of liquid milk in 23Q2 increased month-on-month (+1.0% year on year in 23Q1); revenue performance from animal husbandry products was under pressure, dragging down overall income. By region, 23H1 Shanghai/overseas/overseas revenue was 39.8/63.2/3.76 billion, +1.7%/-4.5%/+0.6%; 23Q2 Shanghai achieved a recovery in revenue growth against the backdrop of a low base of the previous year (-6.5% year-on-year ratio in 23Q1), and base market barriers were still strong; overseas Newlight 23H1 revenue/net profit was 3.77/90 billion, +0.4%/-33.9%. By channel, 23H1 direct management/dealer/other channel revenue was 32.8/106.8/100 million, compared to -7.4%/+0.3%/+25.6%.
23H1 gross sales margin +1.0 pct to 8.0% year on year, gross profit margin +0.4 pct to 2.4% YoY 23H1 gross margin +1.0 pct to 20.1% year on year (23Q2 year on year +1.9 pct to 20.3%), mainly benefiting from the fall in raw milk prices; 23H1 sales expense ratio was 12.2%, flat year on year (23Q2 +1.5 pct to 12.5%); under comprehensive influence, 23H1 recorded gross sales spread +1.0 pct to 8.0% year on year (23Q2 YoY + 0.3 pct to 7.7%). The 23H1 management expense ratio was +0.6 pct to 3.4% year on year (23Q2 year on year +0.7 pct to 3.5%), which is an increase in company employee compensation and depreciation; 23H1 financial expense ratio +0.3 pct to 0.8% year on year (23Q2 year on year +0.3 pct to 0.8%), which is an increase in interest expenses on loans; in the end, 23H1/Q2's net return interest rate was +0.4/+0.5 pct to 2.4%/2.1% year on year.
Adhere to a fresh strategy and maintain a “increase in holdings” rating
We are optimistic that the company will stick to the “fresh strategy”, build core competitiveness from the perspective of the whole industry chain, and promote the nationalization of low-temperature milk; we maintain our profit forecast. We expect EPS in 23-25 to be 0.49/0.56/0.66 yuan, giving it 25x PE in 23, with a target price of 12.25 yuan (11.34 yuan last time), maintaining “increase in holdings”.
Risk warning: Increased industry competition, industry demand falling short of expectations, food safety issues.