1H23 performance is in line with market expectations
The company announced 1H23 results: revenue of 141 billion yuan, -1.9% year-on-year, net profit of 340 million yuan, +20.1%, net profit of non-attributable income of 320 million yuan, +31.0%; 2Q23 revenue of 7.1 billion yuan, -1.3%, net profit of 150 million yuan, +30.1% of non-attributable net profit of 140 million yuan, net profit of non-attributable net profit of 140 million yuan, +39% year-on-year. The 2Q23 business performance was in line with market expectations.
Development trends
Weak demand dragged down the revenue performance of liquid milk in 2Q23, and fresh milk continued to grow relatively well. 2Q23 The company's liquid milk revenue achieved a moderate year-on-year recovery, with a year-on-year increase of 5.4% on a low base. Overall, liquid milk revenue in the first half of the year was +3.1% year-on-year, down 3.3% from 1H21, mainly hampered by weak demand. By region, 1H23's revenue for Shanghai/other regions was +1.7%/-4.5% (up 1.3% and 10.3%, respectively, from 1H21). The Shanghai region grew steadily, while the performance of other regions was disrupted by demand and competition. Looking at each channel, 1H23 distribution/direct sales revenue was +0.3%/-7.4% year-on-year (4.9% increase and 13.9% decrease from 1H21, respectively), and the growth rate of distribution revenue continued to be superior to direct management. In addition to the decline in supermarket traffic, it also showed that the company's distribution business development results continued to be evident. According to our grassroots research, 1H23's fresh milk business continued to grow relatively well, achieving double-digit growth. Low-temperature yogurt performed steadily, while the room-temperature business was under pressure year-on-year. On the New Light side, New Light achieved a 9% year-on-year decline under a high revenue base in the 2nd quarter (a total increase of 0.6% for 1H23), mainly due to pressure on industrial milk powder sales.
Gross margin improved markedly in the 2nd quarter, and domestic profit returned to a good level. Benefiting from the decline in raw milk prices, 2Q23 the company's gross margin was +1.9ppt year on year. In terms of expenses, due to misplaced expenses and the declining share of Xinlite's revenue, the 2Q23 company's sales rate was +1.5ppt year on year (1H23 was the same year on year), while the management expense rate was +0.7ppt year on year, mainly due to increased digital investment and increased employee compensation. New Light's profit declined year-on-year in the 2nd quarter. We expect it to be mainly affected by the drop in the price of large packs of powder. Excluding Xinlight's profit contribution, we estimate that domestic Gimu's net profit recorded about 140 million yuan in the 2nd quarter, which is a good performance.
Following the progress of demand recovery, it is expected that a good performance will be achieved under a low base of 2H23. Looking ahead to 2H23, considering that demand may gradually recover and a low base, we expect the company's revenue to improve 1H month-on-month. It is recommended that we continue to pay attention to the progress of consumption recovery in the future. On the profit side, benefiting from falling milk prices, we expect 2H23 gross margin to continue to improve. Considering the improvement in domestic profits, we expect net profit to return to an agreed level. Considering the impact of weak demand, we expect the company's annual revenue to meet business goals or face certain challenges; however, benefiting from improved profit margins, we expect the annual performance to have a high probability of achieving business goals.
Profit forecasting and valuation
Basically, it maintains the 2023/24 net profit forecast. The company's current transaction is 21/20 times the P/E for 2023/24; it maintains a target price of 11 yuan, corresponding to 22/20 times the P/E for 2023/24 and 5% upward space, maintaining an outperforming industry rating.
risks
Demand is weak, competition is intensifying, and raw material prices are fluctuating.