On August 30, 2023, Lotus Health released the 2023 semi-annual report.
Key points of investment
Performance is in line with expectations, and profitability continues to improve
2023H1 had revenue of 974 million yuan (same increase of 13%), and net profit of Guimu was 50 million yuan (same increase of 57%). Performance was in line with expectations, revenue growth was steady, and the amount and price of MSG chicken essence increased. The gross profit margin for the first half of the year was 16.33% (same increase of 4 pct); net interest rate of 5.35% (same increase of 1 pct); sales expense ratio of 5.06% (same increase of 1 pct), which is an increase in platform promotion expenses; management expense ratio of 3.86% (same increase of 0.3 pct); sales tax and additional share of 0.5% (same decrease of 0.1 pct); net cash flow from operating activities was 32 million yuan (same decrease of 58%). This is a decrease in raw material prices and an increase in raw material reserves. Among them, in 2023Q2, revenue was 518 million yuan (same increase of 17%), and net profit of return mother was 29 million yuan (same increase of 69%). The gross profit margin was 16.85% (same increase of 4 pct), net interest rate of 5.81% (same increase of 2 pct), sales expense ratio of 4.87% (same increase of 1 pct), management expenses ratio of 3.98% (same increase of 0.3 pct), and sales tax and surcharges of 0.47% (same increase of 0.1 pct).
Firmly promote the revival of the Lotus brand and continue to expand across all channels
By product, 2023H1 amino acid condiments such as monosodium glutamate, compound condiments such as chicken essence, liquid condiments such as cooking wine/flour and noodle products/organic fertilizer and water-soluble fertilizer/other revenue was 7.36/1.21/0.03/0.49/0.11/036 billion yuan, compared to +17%/+25%/+114%/-56%/-10%/+323%. By channel, 2023H1's online/offline revenue was 0.18/954 billion yuan, +156%/+12% year-on-year. The online growth rate was impressive. The company insisted on promoting the “521” brand revival strategy and strengthened “Lotus” as the leading domestic condiment market in China through channels such as Shakuai and Xiaohongshu. Looking at the subregion, 2023H1 North China/East China/South China/West China/Central China/Foreign regional revenue was 0.67/1.36/1.5/1.57/3.09/153 million yuan, compared with +16%/+6%/-1%/+15%/+16%/+30%, and the region continued to accelerate expansion. By the end of 2023H1, there were a total of 2,636 dealers, a net increase of 135. The company continues to strengthen condiment market expansion, actively lay out diversified condiments, drinking water, prepared dishes and other related fields, set up a wholly-owned subsidiary, Hangzhou Lotus Technology Innovation Co., Ltd., and actively explore the second growth curve.
Profit forecasting
We are optimistic that since the majority shareholders joined the company, they have continued to carry out internal reforms, resolve historical burdens, go to battle lightly, and actively explore the second growth curve. The EPS for 2023-2025 is expected to be 0.07/0.12/0.19 yuan, and the current stock price corresponding to PE is 50/29/18 times, respectively. It is covered for the first time, and a “buy” investment rating is given.
Risk warning
Macroeconomic downside risks, food safety risks, main business growth falling short of expectations, and risk of cost increases.