Incident: Weilong released its semi-annual report results for 2023. 23H1 achieved revenue of 2,327 billion yuan, +3.0% year on year; adjusted net profit of 497 million yuan, +17.0% year on year.
The impact of price increases is still there, and sales volume declined year over year.
1) By product: 23H1 flavored noodle products/vegetable products/soy products and other products achieved revenue of 1,289/9.33/105 million yuan, year-on-year, -3.9%/+14.1%/+3.7%. ① The continued decline in revenue from flavored noodle products was mainly due to price increases last year and a decrease in traffic from major offline traditional and supermarket channels; ② Good revenue growth for vegetable products, mainly due to the end of price increases and a decrease in overall impact. However, from a sales perspective, sales volume declined in all categories. 23H1 flavored noodle products/vegetable products/soy products and other products sold -24.0%/-1.8%/-10.1%, respectively.
2) By channel, 23H1 offline/online channels achieved revenue of 20.65/262 billion yuan, +2.2%/+9.5% over the same period.
The faster online growth rate is mainly due to the company closely following the changing trend of online traffic and increasing investment in mainstream social media. Among them, 23H1's online direct sales revenue was +36.1% over the same period. By the end of June 2023, the number of the company's offline dealers reached 1,838, a net decrease of 9 from the end of 2022.
3) Subregionally, East China/Central China/North China/South China/Southwest China/Northwest/Overseas achieved revenue of +5.74%/-3.27%/-2.49%/+1.91%/+3.93%/-2.44%/+78.94%/. The rapid growth in overseas revenue is mainly due to the low base and the company's emphasis on overseas market promotion. The establishment of an overseas business development center in 23Q1 was established, with the CFO leading the establishment of an organizational structure.
Price increases combined with reduced cost pressure, gross margin improved drastically, and net profit turned loss into profit.
23H1's gross margin was 47.5%, +9.4 pcts year on year. The increase in gross margin was mainly due to last year's product price increase and 23H1 raw material price drop. The unit prices of seasoned noodles/vegetable products/soy products and other products were +26%/+16%/+15%, respectively. The 23H1 sales expense ratio was 15.8%, +3.9 pcts year on year, mainly due to increased investment in online and offline advertising expenses and expansion of the sales team. The 23H1 management fee rate was 9.4%, -0.4 pcts year-on-year, mainly due to a decrease in professional expenses and listing expenses to offset the increase in employee welfare expenses. Overall, 23H1's net sales interest rate was 19.21%, +30.75pcts over the previous year.
Actively expand the layout of snack channels, and gradually improve the dealer model.
23H1 The company's overall sales growth rate has slowed due to weak consumer demand and the rapid development of mass snack channels. The company actively embraces channel changes and has been negotiating and cooperating with the snack channel since April. The channel's products are mainly in bulk, and the company is gradually introducing customized packaging and an independent pricing system to promote the development of this channel. The snack channel achieved revenue of about tens of millions of yuan in '22, and the company expects the channel to more than double its revenue contribution in '23. The company has implemented marketing assistance and ancillary sales models since '22, and the implementation of the new dealer management model has achieved initial results. Under the ancillary sales model, the number of SKUs in stores in central cities has increased markedly, and sales in cities that have implemented the ancillary sales model are superior to those that have not implemented the ancillary sales model. With the gradual improvement of the dealer management model, the quality of the company's operations is expected to improve.
Profit Forecast, Valuation and Rating: Considering that consumer demand is still weak and Weilong product sales volume is still declining, we lowered Weilong's net profit forecast for 2023-2025 to 992/11.62/1,308 million yuan respectively (5%/8%/14% respectively). The current stock price corresponds to PE of 16x/14x/12x respectively in 2023-25. Spicy foods are naturally addictive, user stickiness is strong, and growth is relatively stable. As a leader, the company is expected to benefit from industry growth and maintain its “increase in holdings” rating.
Risk warning: food safety risks, risk of changes in consumer demand, risk of increased competition in the industry.