3Q23 performance is lower than we expected.
The company announced 1-3Q23 results, with revenue of 1.53 billion yuan, up 1.3%, and net profit of 52.21 million yuan, down 45%. On a quarterly basis, the ratio of 1Q/2Q/3Q23 income to score + 0.7%, 31.3% and 18.7%, respectively, decreased 29.3%, 40.4%, 54.2%, respectively, and the performance of Q3 was lower than we expected. We expect it to be mainly due to the pressure on overseas orders for pet products from a higher base.
Trend of development
1. Overseas orders for pet products are expected to improve, and pet food business continues to grow rapidly. 1) Pet products export: we expect Q3 company pet products business orders year-on-year or under pressure. According to the General Administration of Customs, China's animal saddle and harness exports have been gradually repaired since July. The year-on-year decline in exports narrowed to-4.4% in September, and the export volume also increased by 1.1%. We expect that with the continuous decline in stocks in overseas channels and the availability of goods in Europe and the United States during the peak consumption season, the follow-up company's pet products export business income is expected to improve. 2) Pet food agency: according to Jiuqian data, online retail sales of Q3 Tmall and JD.com both increased by 7%. We expect that the terminal demand of Q3 will continue to expand in the off-season, and the company's pet food agency business is expected to continue to grow rapidly.
2. The profitability is improving quarter by quarter, and pay attention to the follow-up improvement trend. At the gross margin end, the company's Q3 gross profit margin reached 19.7%, which increased 2ppt/3.3ppt year-on-year / month-on-month, respectively. We believe that the optimization of the company's product structure has led to an increase in gross profit margin. On the expense side, the company's Q3 sales / management / financial expense rate increases with the increase of 2.9ppt/0.9ppt/3.2ppt, and the company expense investment increases. Under the combined influence, the company's Q3 homing net interest rate reached 4.1%, with a drop in 3.2ppt and an increase in 1.2ppt compared with Q2.
3. As an one-stop supplier of pet products, the company is expected to resume steady growth in the future. We expect that in terms of pet products, the company has outstanding advantages in production and supply chain. At present, it has built a rich product matrix to meet the one-stop and large-scale purchasing needs of overseas customers, followed by the repair of overseas orders, and the revenue side is expected to be improved. The company is also actively layout intelligent pet products and other new categories, product portfolio optimization is expected to lead to subsequent profitability improvement. In terms of pet food, the company cooperates well with overseas high-end brands, has obvious advantages in products and brands, and is expected to rise faster than the industry in the follow-up.
Profit forecast and valuation
Considering that overseas orders are still under pressure, we have lowered our 24-year profit forecast of 23% to RMB 0.96 billion, with the current price corresponding to 23 times of Pmax E in 24 years. Based on the adjustment of profit forecast and medium-and long-term growth, we have lowered the target price by 8% to 27.5 yuan, corresponding to 23% of 24-year 36-time Pmax E, which has 26% upside space.
Risk
The risk of demand change in overseas market, the risk of exchange rate fluctuation, the risk of loss of core customers, the risk of tariff levy, the risk of outsourcing production mode.