Core views
The implementation of the new national standard led to an increase in the company's revenue throughout the year, achieving revenue of 445 million yuan, an increase of 2.78% over the previous year. As the new national standard approached in the fourth quarter of 2022, downstream demand for the company's products increased markedly, and the company's revenue growth rate under a high base was clearly under pressure. In the fourth quarter, the company achieved revenue of 121 million yuan, a year-on-year decrease of 24.69%. Looking at profit levels, 22Q4 lost significantly due to long-term equity investments, accounts receivable, and prepaid account impairment preparations related to the participating company Famaco in 2022. As a result, the company's net profit for the year increased by 42.17% year on year to 92 million yuan.
DSM's patent protection expires in June 2023, and overseas downstream customers are also increasing their suppliers to ensure the safe supply of raw materials. In terms of new products, the company is also actively developing categories such as hMOs to expand market space. The number of new births in 2023 was 9.02 million, exceeding market expectations. Judging from some archival data, the new population is also expected to stabilize in 2024, driving a recovery in demand from downstream customers.
occurrences
On February 23, the company released its 2023 performance report: annual revenue of 445 million yuan, a year-on-year increase of 2.78%, realized net profit to mother of 92 million yuan, an increase of 42.17% year-on-year, after deducting net profit of 68 million yuan, an increase of 121.88% over the previous year.
Among them, the fourth quarter achieved revenue of 121 million yuan, a year-on-year decrease of 24.69%, achieving net profit of 31 million yuan, a loss of 0.13 million yuan in Q4 of '22, net profit of 27 million yuan after deducting net profit of non-return to mother, and a loss of 0.24 million yuan in Q4 '22.
Brief review
The new national standard led to revenue growth throughout the year. The growth rate in the fourth quarter was under pressure due to the increase in revenue from ARA and DHA products brought about by the implementation of the new national standard in the first three quarters. The company's revenue increased throughout the year. In 2023, we achieved revenue of 445 million yuan, an increase of 2.78% year over year. However, due to the approach of the new national standard in the fourth quarter of 2022, downstream enterprises launched new national standard products one after another, and demand for the company's products increased markedly, making the revenue base higher. However, in the downward trend in the new population, combined with factors such as inventory removal by leading downstream companies to reduce channel pressure, the company's revenue growth rate in the fourth quarter of 2023 was clearly under pressure. The fourth quarter achieved revenue of 121 million yuan, a year-on-year decrease of 24.69%.
The product structure continued to recover, and the profit level achieved a high increase on a low basis. Judging from the profit level, the fourth quarter of 2022 recorded impairment preparations for long-term equity investments, accounts receivable and prepaid accounts related to the participating company Famaco, and losses were obvious in a single quarter. However, changes in the customer structure due to fluctuations in overseas revenue in 2023 and the impact of price adjustment factors on profit levels gradually improved during the year, and the increase in revenue throughout the year led to an increase in gross profit. Combined with factors such as the recovery of share payment fees, the company achieved net profit of 31 million yuan in the fourth quarter and a loss of 13 million yuan in Q4 in '22. Net profit to mother for the whole year was 92 million yuan, up 42.17% year on year; net profit margin increased 5.69 pcts year on year to 20.54% year on year.
There is still room for development in overseas markets. In terms of actively deploying new categories such as hMOS in overseas markets, DSM patent protection expires in June 2023, and overseas downstream customers are also increasing their suppliers to ensure the safe supply of raw materials. At the same time, the company used ARA as a breakthrough in cooperation to gradually promote the evaluation and approval of the company's algae oil DHA products in the field of infant formula. In addition to the infant formula business, it is also actively promoting cooperation with international customers in the field of dietary supplements to open up broad overseas market space. In terms of new products, on October 7, 2023, hMOS was approved for use in infant formula and infant formula for the first time in China. The company actively lays out the hMOS market, and product development, regulatory approval, customer development and capacity construction are being carried out simultaneously. It has successfully passed the biosafety review by the Ministry of Agriculture and entered the food safety review by the Health and Health Commission. At the same time, the company has cooperated with core customers to conduct efficacy studies to prepare for the upgrade of infant formula.
The newborn population is expected to stabilize in 2024, driving a recovery in downstream demand. Under the influence of factors such as increased urbanization, residents' desire to have children decreases, the number of new births continues to decline, and the company's downstream infant formula industry is under pressure as a whole. However, in recent years, external factors have also impacted short-term fertility intentions, and short-term pressure on spending power levels has also had an impact. With the elimination of short-term external factors and subsequent recovery in spending power levels, combined with policy support, residents' desire to have children is expected to pick up. The number of new births in 2023 was 9.02 million, exceeding market expectations. Judging from some archived data, the new population is also expected to stabilize in 2024, and there is a bottoming upward trend. The elimination of factors influencing short-term childbearing intentions is expected to slow the downward trend in the newborn population and drive the recovery of the company's downstream infant formula industry.
Profit forecast: The company is expected to achieve revenue of 445, 5.65, and 685 million yuan in 2023-2025, and achieve net profit of 0.92, 1.25, and 151 million yuan, corresponding to PE of 24X, 18X, and 14X in 23-25, maintaining an “increase in holdings” rating.
Risk warning:
1. Risk of a sharp rise in raw material prices: The raw materials required for the company's production are mainly glucose, yeast powder, lactose, corn syrup, etc. The supply is affected by various factors such as the global economic and political environment, wars, regions, and climate. A sharp rise in prices may adversely affect the company's production costs and profitability.
2. Overseas customer expansion falls short of expectations: DSM's patent has expired, and the company has a lot of room for future overseas market development. If market development is adversely affected by policy changes in overseas countries or disputes with competitors, etc., customer expansion is blocked, and the company's performance growth falls short of expectations.
3. Increased risk of market competition: Foreign DSM companies maintain a leading position in the world. If competitors increase competition by lowering sales prices, etc., it will cause the risk of price fluctuations of the company's products and reduce the company's profit level.