Incident: The company released its semi-annual report for 2023, with a turnover of 2,327 million yuan, an increase of 3.0% over the previous year; realized a net profit of 447 million yuan, a loss of 261 million yuan for the same period last year, and achieved adjusted net profit of 497 million yuan, an increase of 17% over the previous year. The company's revenue fell short of expectations. Profits were largely in line with expectations. The company declared an interim dividend of RMB 0.12 per share of the Company's common stock for 2023, totaling approximately RMB 282 million, with a dividend rate of 63%.
Investment ratings and valuations: Considering that the decline in traditional KA traffic affects the company's product sales, the profit forecast is lowered, and the profit forecast is predicted to be 9.95, 11.60, and 1,344 billion yuan in 2023-2025 (10.24, 11.94, and 1,384 billion yuan before 23-25), with year-on-year increases of 558%, 17%, and 16%, respectively. The latest closing prices corresponding to 23-25 PE are 16x, 14x, and 12x respectively, maintaining the increase in holdings rating. As a leading enterprise in the industry, the company's brand awareness is high, volume and price are rising rapidly, seasoned noodle products are expected to maintain steady growth, and vegetable products are expected to accelerate growth with channel advantages, becoming the company's second growth curve.
Sales of flavored noodle products are under pressure, and the share of vegetable products continues to rise. According to the company's announcement, by product, 23H1 flavored noodle products/vegetable products/soy products and other products achieved revenue of 1,289/933/105 million yuan, respectively, with a year-on-year ratio of -3.9%/14.1%/3.7%. Looking at volume and price splitting, the sales volume of seasoned noodle products/vegetable products/soy products and other products was -24%/-1.8%/-10.1%, respectively. The average price was +26.4%/+16.2%/+15.3%, respectively. Due to the decline in traditional KA traffic, the company's product sales have been affected to varying degrees.
By adjusting the product structure, the average price increased significantly, but due to the elimination of some low-priced products, the decline in sales volume clearly put pressure on revenue performance; vegetable products basically overcame the impact of product restructuring on sales volume, and the revenue share continued to increase; the soy products and other products business continued to increase; the soy products and other products business reduced marketing activities for some soy products, and sales volume was under pressure, but demand for halved egg products increased, driving revenue growth.
Deeply penetrate offline distribution networks and effectively reach online channels. According to the company's announcement, by channel, offline channels reached 2,065 billion yuan, or 2.2% year-on-year. The offline channel actively promoted ancillary marketing strategies. The ancillary sales model established sales offices in Tier 1 and 2 cities to improve terminal execution. The facilitation model promoted terminal coverage and increased yield in low-tier cities, and the number of stores covered and average SKU per store continued to increase. In May 2023, we began to actively embrace snack mass sales channels. By the end of June, we had reached cooperation with 62 snack systems, covering more than 10,000 stores. According to the company's internal management account statistics, snack channel sales in July were 39 million yuan. Online distribution/offline direct sales achieved revenue of 0.97 billion yuan to 165 million yuan, respectively -17.95%/36.14% year-on-year. The rise in online direct sales channels is mainly due to online channels opening new self-operated stores to expand online sales.
Price increases have been transmitted smoothly, and profitability has improved. According to the company announcement, 23H1 achieved a gross profit margin of 47.5%, an increase of 9.4 pct over the previous year, mainly due to the smooth transmission of the company's price increase. In terms of cost ratio, the company's sales expenses rate rose 3.9 pct to 15.8% year on year. The main reason was 1) the company strengthened advertising on outdoor media, e-commerce platforms and other online media. 23H1 promotion and advertising expenses were 90 million yuan, an increase of 145.7%; 2) the sales team expanded, and employee welfare expenses were 165 million yuan, an increase of 48.2%. The management fee rate decreased by 0.4 pct to 9.4% year over year. Overall, the company achieved an adjusted net interest rate of 21.4%, an increase of 2.6 pct over the previous year.
Looking ahead to the second half of the year, revenue is expected to accelerate month-on-month. 1) Price increases and product structure adjustment factors have been basically eliminated; 2) The company promotes channel cultivation through ancillary sales and marketing assistance, accelerates the layout of snack channels, and reaches cooperation with membership-based supermarket channels such as Costco; 3) Launching sub-brands to position spicy products, which are different from previous sweet flavors, and is expected to broaden the consumer audience.
Core hypothesis risk: channel risk, raw material price fluctuations, food safety issues