The performance is in line with market expectations. 23H1 achieved total operating income of 2,327 million yuan, +3.0% year-on-year; adjusted net profit of 497 million yuan, +17% year-on-year. Performance was in line with expectations, and revenue performance was still weak, mainly due to slow recovery in sales volume; good profit performance mainly benefited from lower costs.
Sales of vegetable products have basically recovered, and noodle products have yet to recover. Seasoned noodle products/vegetable products/soy products and others achieved revenue of 1,29/93/110 million yuan in 23H12022, respectively, -3.9%/+14.1%/3.7% over the same period last year. Looking at the split volume and price, the sales volume of flavored noodle products/vegetable products/soy products and others was 62/27/30,000 tons, respectively, compared to -24.0%/-1.8%/-10.1%. The tonnage price was 2.1/3.4/40,000 yuan, respectively, and +26.4%/+16.2%/+15.3%. Among them, the sales volume of vegetable products 23H1 recovered relatively well, basically returning to the level before the 22H1 price increase. However, the loss of flavored noodle products is still recovering slowly. There is still a big gap compared to before the price increase, and there is even a month-on-month decline compared to 22H2, mainly because the channel's digestion of the price increase is lower than expected.
Lower costs increased gross profit, and higher cost ratios were somewhat offset. 23H1 Company's gross margine/sales expense rate/ administrative expenses rate/ adjusted net interest rate were 47.5%/15.8%/9.4%/21.4%, respectively, +9.4/+3.9/-0.3/+2.6 PCT, year-on-year, +1.2/+0.4/-1.6/+0.8 pct. There was a further increase in 23H1 gross margin compared to 22H2 (although all after price increases), mainly due to the fact that costs such as soybean oil fell a lot, and the decline in costs had a positive contribution to gross margin. The sales expense ratio increased year-on-year and month-on-month, mainly because the company continued to promote ancillary sales and sales support models and hired additional sales staff. Salesperson welfare expenses rose from $110 million in 22H1 to 160 million yuan in 23H1, a sharp increase of 48.2% over the previous year. At the same time, the company strengthened brand promotion. Advertising expenses rose from 36.6 million yuan in 22H1 to 89.8 million yuan in 23H1, a sharp increase of 145.7% over the previous year.
Continue to expand new channels and lay out new products. In May 2023, the company made a transformation and began to actively embrace snack mass sales channels. In July, the monthly sales volume of snack sales channels reached 39.2 million yuan. At the same time, the company released a new product, Overbearing Panda Spicy Spicy Strips in September, and continues to lay out the spicy race track. The company will expand into new channels, and the launch of new products will also lead to an increase in sales volume, so we expect 23H2's sales volume to improve month-on-month compared to H1. However, due to the promotion of new products and the continued strengthening of distribution channels, we expect the 23H2 sales cost ratio to rise slightly from month to month.
Investment advice and profit forecasting. As sales volume recovery fell short of expectations, we reduced this year's revenue; based on falling costs exceeding expectations, we increased this year's profit. We expect the company's revenue for 2023-2025 to be 49.6/55.9/620 billion yuan (previous value was 54.8/61.7/68.3 billion yuan), +7.1%/12.7%/10.9%; net return profit was 9.6/11.5/1.27 billion yuan (previous value was 9.2/11.9/1.32 billion yuan), +532.7%/19.8%/11.0%; the estimated 2022-2024 EPS will be 0.41/0.49/0.54 yuan respectively ( (The previous value was 0.39/0.51/0.56 yuan). Referring to the valuation of comparable companies, Weilong was given 23 times PE (unchanged) in 2023. The corresponding target price was HK$10.02 (1HKD=0.93CNY, previous target price was HK$10.31), and upgraded to a “superior to market” rating.
Risks: Sales volume recovery falls short of expectations, increased competition, channel changes in the snack industry