2023Q3's kitchen food revenue and profit were slightly under pressure, while the revenue and profit of feed ingredients and grease technology improved year over year, driving overall profitability to improve both month-on-month and year-over-year. Looking ahead to 2023Q4, raw material prices will remain low and volatile. The company's performance is expected to continue to improve. It is hoped that the central kitchen business will gradually increase in volume, exert synergy, and form a new growth curve. Maintain the “Overweight” rating.
Revenue growth has been steady, and profits have improved markedly. 2023Q1-3 achieved revenue of 188.5 billion yuan, +0.4% year-on-year, net profit of 2.13 billion yuan, -9.5% year-on-year, net profit of 9.1 billion yuan, minus 59.8% of non-net profit.
Among them, in 2023Q3, the company achieved revenue of 69.8 billion yuan, a same increase of 2.1%, net profit of 1.16 billion yuan, a same increase of 208.4%, net profit of 890 million yuan after deducting non-return net profit of 890 million yuan. The same period last year was a loss of 160 million yuan. The same period last year was a loss of 160 million yuan. The Q3 performance improved significantly over the same period last year.
The performance of kitchen food is under slight pressure, and the profit of feed ingredients and grease technology has improved. By business, 1) Kitchen food: In 2023Q3, we judge that revenue from this business was flat and declined slightly. Among them, revenue from retail products achieved a year-on-year increase, raw material prices led to a similar year-on-year increase in profit, and sales of catering and industrial channel products increased significantly as terminal demand recovered, but as product sales prices declined along with raw material prices, both revenue and profit declined. Furthermore, from a product perspective, according to its 2023 three-quarter report, the company's previous high-priced wheat inventory has basically been digested, and the profit of the 2023Q3 flour business has increased year-on-year. 2) Feed raw materials and oil technology: 2023Q3 achieved year-on-year revenue growth. Among them, the feed ingredients business achieved year-on-year growth in revenue due to tight domestic soybean supply, prices of soybean meal and other products rebounded, sales volume rose year on year, and pressing profit also increased significantly year on year; oil technology products also achieved a year-on-year increase in profit as volume and price rose sharply.
Gross margin improved year over year, overall expense ratio stabilized, and profitability improved. In 2023Q1-3, gross margin was -1.2Pcts to 4.7% yoy (Q3 +2.7Pcts to 5.7% yoy). The Q3 gross margin improvement was mainly due to the increase in the gross margin of the feed ingredients and oil technology business. The gross margin of kitchen food was dragged down by the decline in gross margin in catering and industrial channels, and overall gross margin declined. The overall expense ratio remained stable. 2023Q1-3, the sales expense ratio was flat year on year (Q3 was flat year on year), management expense ratio was +0.1 Pct year on year (Q3 was flat year on year), and the financial expense ratio was -0.3 Pct year over year (Q3 was flat year on year). Furthermore, asset impairment losses decreased by 280 million yuan (Q3 decreased by 190 million yuan), investment income increased by 1.69 billion yuan (Q3 increased by 50.64 million yuan), and net income from changes in fair value decreased by 4.4 billion yuan (Q3 decreased by 3.75 million yuan). As a result, the net interest rate for 2023Q1-3 was reduced by 0.1Pct to 1.1% (the net interest rate for Q3 was increased by 1.1 Pcts to 1.7%).
Q4 I hope the improvement trend will continue, and I look forward to the gradual increase in the central kitchen business. Looking ahead to 2023Q4, the prices of soybeans and palm oil have remained low and volatile since October, which favors the company to reduce business costs, but it is necessary to continue to pay attention to the pressing profit trend. According to Wind, the profit for imported soybeans in October was -3 yuan/ton (473 yuan/ton in September). Overall, we believe that with raw material prices at a low level, the company's performance is expected to continue to improve. Looking at the medium to long term, the company is currently focusing on building the central kitchen business, combining the leading advantages of the company's grain, oil, rice and noodle business, and building a park ecosystem. The Hangzhou, Zhoukou, and Chongqing projects have been put into operation in 2022, with more than 100 long-term planning targets. Among them, Hangzhou Central Chef will continue to increase its influence as a vegetable supply base for the Hangzhou Asian Games and Paralympics (daily supply is 70-80 tons), which will help develop subsequent customers. It is expected that the company's central kitchen project will continue to be put into operation, and will form a synergy effect with the original main business and become a new growth curve.
Risk factors: food safety risk; risk of large fluctuations in raw material prices; increased industry competition; risk of corporate hedging; risk of the company's new business development falling short of expectations.
Investment suggestion: Considering the current month-on-month decline in imported soybean pressing profits and the external business environment, slightly adjust the company's 2023-2025 forecast to 0.57/0.88/1.06 yuan (the original forecast was 0.60/1.00/1.20 yuan).
Considering the valuations of the remaining leading condiments, Haitian Flavor, and Hengshun Vinegar (wind unanimously expects current prices to correspond to 2024 PE 29 and 47 times, respectively) and our forecast for the company's higher performance growth rate, the company was given 45 times PE in 2024, corresponding to a target price of 40 yuan (maintenance). Maintain the “Overweight” rating.