Core viewpoints

Since the third quarter, the company's liquid milk sales have yet to recover, while the decline in raw milk prices caused a significant decline in revenue in the animal husbandry sector. The company achieved revenue of 6.525 billion yuan in the third quarter, down 6.44% from the same period last year, and 20.664 billion yuan in the first three quarters, down 3.37% from the same period last year.

Although the decline in raw milk prices has partially reduced the cost of liquid milk business, the operation of the animal husbandry sector is under pressure. At the same time, affected by the losses of overseas subsidiaries, the company's profits in the third quarter are under great pressure.

The company's net interest rate fell 0.17pcts to 1.56% year-on-year in the first three quarters, and 1.50pcts to-0.23% in the third quarter.

The company promotes milk source layout to ensure the implementation of the "fresh" strategy, and continues to promote marketing and new product development. Since the National Day of the Mid-Autumn Festival, residents' travel has led to a series of consumption recovery, the consumption scene of low-temperature fresh milk is also expected to continue to recover, and the company's profitability is expected to get back on track.

Event

On October 27, the company released its third quarterly report for 2023: revenue in the first three quarters was 20.664 billion yuan, down 3.37% from the same period last year, and net profit was 323 million yuan, down 12.67% from the same period last year. Non-return net profit was 312 million yuan, an increase of 10.68% over the same period last year. Of this total, the revenue in the third quarter was 6.525 billion yuan, down 6.44% from the same period last year, and the net profit was 15 million yuan, down 117.36% from the same period last year. The non-return net profit was 5 million yuan, down 111.66% from the same period last year.

Brief comment

Liquid milk consumption still needs to be restored, and the animal husbandry sector is a drag on income.

Since the third quarter, the consumer environment has recovered slowly, and the company's liquid milk sales have dropped slightly compared with the same period last year. As the price of raw milk continues to decline, the company's animal husbandry sector is under obvious pressure, dragging down the company's overall revenue.

In the first three quarters, the company achieved revenue of 20.664 billion yuan, down 3.37% from the same period last year, of which revenue in the third quarter alone was 6.525 billion yuan, down 6.44% from the same period last year. In terms of business, the company's revenue from liquid milk, other dairy products, animal husbandry products and other sectors reached 122.23, 56.72,14.49 and 1.181 billion yuan respectively in the first three quarters, which was + 1.04%,-5.51%,-29.23% and + 25.55% respectively over the same period last year, of which the revenue in the third quarter alone was 42.18,14.83,3.96 and 371 million yuan respectively. Year-on-year-2.67%,-6.65%,-34.10%, + 23.81%.

From a regional point of view, revenue in Shanghai, other places and abroad in the first three quarters was 58.19,95.88 and 5.119 billion yuan, which was + 0.01%,-6.56% and + 2.19% compared with the same period last year, of which revenue was + 18.42,32.70 and + 1.356 billion yuan in the third quarter alone, compared with-3.51%,-10.25% and + 6.77% respectively.

The non-local and Shanghai markets continued to be under pressure, and the growth of overseas income accelerated slightly.

According to the sub-sales model, the revenue of the direct operation and dealer model in the first three quarters was 48.53,15.585 billion yuan, which was-11.99% and + 0.75% compared with the same period last year, of which the revenue in the third quarter alone was 15.76 yuan and 4.902 billion yuan, which was-20.27% and + 1.73% respectively. The downward trend of the direct operation model has intensified, and the dealer model remains stable.

Overseas subsidiaries lose money, dragging down the company's performance in the third quarter

Although the decline in raw milk prices has partially reduced the cost of liquid milk business, the operation of the animal husbandry sector is under pressure. At the same time, affected by the loss of overseas subsidiaries in the third quarter, the company's profits in the third quarter are under obvious pressure. The company's gross profit margin rose 0.27 pcts to 18.67% year-on-year in the first three quarters, and fell 1.41pcts to 15.52% in the third quarter compared with the same period last year. In terms of expenses, affected by the decline in revenue, the company's sales expense rate in the first three quarters was 12.42%, an increase of 0.31 pcts over the same period last year, and the sales expense rate in the third quarter alone was 12.98%, an increase in 1.02pcts over the same period last year. The rate of management expenses in the first three quarters was 3.23%, an increase of 0.29pcts over the same period last year, and the rate of management expenses in the third quarter was 2.94%, a decrease of 0.45pcts over the same period last year. Under the trend of declining gross profit margin and rising expense rate in the third quarter, the company's net profit margin fell 0.17pcts to 1.56% year-on-year in the first three quarters, and 1.50pcts to-0.23% in the third quarter alone.

Consolidate the strategic foundation of "freshness" and promote marketing and new product development

As the first brand of fresh milk in China, the company continues to promote the layout of milk sources to ensure the implementation of the strategy. In the first half of the year, the company completed the construction of Ningxia Zhongwei, Anhui Funan, Anhui Huaibei, Hachuan II and Jinshan projects, among which Ningxia Zhongwei and Anhui Funan projects completed acceptance. **** animal husbandry cattle health level, fresh milk quality, cow yield and other indicators reached the best level in history. At the same time to promote supply chain optimization, February 2023 won the "2022 national supply chain innovation and application demonstration enterprise" title. In terms of marketing, the company exclusively named CCTV a set of "China in Classical Books" for the second season, and continued to improve its brand strength by joining hands with the Chinese lunar exploration project. In October, **** Youbei exclusively named the fifth season of Oriental Satellite TV's "our Song", and **** Zhiyouyao sponsored the 2023 Shanghai Rolex Tennis Masters. The product side also continues to launch new products, developing and listing 30 new products in the first half of the year to meet the diversified needs of consumers, and launched excellent native DHA fresh milk in September.

Profit forecast: from 2023 to 2025, the company is expected to achieve an income of 285.2 yuan, 313.8 yuan and 34.56 billion yuan, and a net profit of 5.31 yuan, 6.47 yuan and 728 million yuan, with a corresponding EPS of 0.39,0.47,0.53 yuan and a corresponding PE of 26x, 22x and 19x.

Risk Tips:

1. The risk of repair is lower than expected: since the beginning of the year, residents' travel has continued to grow, and dairy sales have gradually recovered. If the flow of people in the sales scene is lower than expected, it will affect the product sales of dairy enterprises.

2. the risk of rapid upward price of raw milk: direct materials account for a relatively high proportion in the cost of dairy products, among which raw milk and milk powder account for a larger proportion. In recent years, the main raw milk imports gradually reduced production capacity, superimposed high feed costs, if raw milk costs higher than expected, will affect the profitability of enterprises.

3. The degree of slow competition is lower than the market expectation: the intensification of competition among dairy enterprises will lead to the continuous growth of advertising, promotion and other market expenses, affecting the profitability of enterprises.