3Q23 performance is in line with our expectations
The company announced 1-3Q23 results, with revenue of 730 million yuan, down 6.7%, and net profit of 100 million yuan, down 24.6%. From a quarterly point of view, the 1Q/2Q/3Q23 revenue is-46.2%, 22.3%, 27.5%, and the net profit is-63.7%, 1.9%, 6.5%, respectively, in line with our expectations.
Trend of development
1. The resumption of overseas orders has led to a steady increase in revenue, and domestic business is expected to achieve rapid growth. The company's Q3 revenue reached 300 million yuan, a year-on-year increase of 27.5% and 23.9% respectively. We expect that, 1) by category, overseas inventories such as pet traction appliances and injection toys continue to decline, the quality of new product development of the superimposed company is improving, and the revenue of pet products is expected to improve. and the company's main pet snack customer warehouse cycle is also expected to be coming to an end, the food business is expected to improve steadily. 2) from a regional point of view, with the continuous promotion of the standardized management of pet breeding in China and the continuous expansion of the pet food market, domestic business such as pet traction rope and freeze-dried snacks is expected to achieve rapid growth.
2. The gross profit margin has improved, and the exchange earnings have reduced the short-term drag on profits. On the gross margin side, the company Q3 achieved a gross profit margin of 22.8%, with a year-on-year / month-on-month increase of 2.7ppt / 1.9ppt; on the expense side, the company's Q3 sales / management + R & D / financial expense rate was respectively year-on-year + 0.8ppt/-1.7ppt/+6.4ppt, and the increase in financial expense rate was mainly due to the decrease in exchange earnings; under the comprehensive influence, the company Q3 achieved a net profit of 12.8%, with a drop in 2.5ppt.
3. Pay attention to the recovery trend of demand for overseas pet products, and the release of production capacity is expected to open up room for growth. In the short term, according to the General Administration of Customs, from July to September 2023, China's exports of animal saddles and harness (denominated in US dollars) fell by 31.6%, 14% and 4.4% respectively, and the decline continued to narrow, and the export volume in September turned positive to 1.1% compared with the same period last year. We believe that traction supplies and toy terminal demand has a certain degree of resilience, customer and channel inventory removal is expected to drive the company's follow-up orders continue to pick up, and the company is actively launching bite-resistant, ultra-light series and other new products, the follow-up is expected to contribute to revenue increment. In the medium and long term, we expect that the capacity release of the company's IPO project is expected to break through the bottleneck of development, the decline in the proportion of outsourced production is expected to support the continuous improvement of gross profit margin, and the horizontal extension of categories such as cat litter is expected to further enrich the category matrix and open the medium-and long-term growth ceiling.
Profit forecast and valuation
The 24-year profit forecast for 23xx remains unchanged, and the current share price corresponds to 17 times of Ppicurus E for 24-year 19Compare. Maintain the industry rating to outperform, consider the valuation switch, and raise the target price by 9% to 18 yuan, corresponding to 22 times Phammer E in 24 years, which has 23% upside space compared with the current stock price.
Risk
The rising price of raw materials, the risk of tariff increase, the risk of core customer loss, the risk of exchange rate fluctuations.