occurrences
Hairong Cold Chain released its 2023 annual report: 2023A achieved revenue of 3.205 billion yuan, +10.34% year on year, net profit of 413 million yuan, +41.37% year on year, after deducting non-net profit of 392 million yuan, +40.55% year on year; 23Q4 achieved revenue of 707 million yuan, +20.24% year on year, net profit of 57 million yuan, +140.08% year on year, net profit of 38 million yuan, +103.36% year on year; annual cash dividend rate of 51.0%.
The main business accelerated quarterly, and customer adjustments came to an end
The quarterly growth rate of the company's revenue in '23 was +6%/+7%/+15%/+20%, respectively. Excluding the impact of the low base in the second half of the year, Q3/Q4 revenue remained flat/+6% compared to the same period in '21, and the trend improved. By product, the frozen Southeast Asian market is driving export sales. Domestic sales are expected to grow in the middle single digits, +18% for the whole year; domestic refrigeration sales mainly recovered from a low base, and overseas growth rate changed to positive since Q3, and +5% for the whole year. Overall, the overseas expansion of freezers contributed mainly to the increase. 23A's export revenue was +41%. Domestic sales were greatly affected by customer fluctuations, and remained flat year over year.
The structure continued to improve, and the profit increase was better than expected
Benefiting from the increase in the share of export sales and refrigeration businesses, the overall gross margin was +6pct year on year in '23, returning to pre-epidemic levels. In addition to structural changes, with the exception of refrigeration, which was affected by increased competition, the gross profit of refrigeration and smart cabinets all increased by a high order of magnitude, and the low level of supermarkets was restored; domestic/overseas gross margins were +3/+10pct, respectively. The favorable raw material exchange rate and manufacturing optimization also contributed to cost reduction. Under the influence of increased investment in new business and overseas channel adjustments in '23, the sales expense ratio was +2.4 pct. The remaining rates were basically stable, and the attributable profit margin was +2.8 pct.
Downstream expansion resumed, customer expansion realized incremental growth
It is difficult for B-side businesses to avoid exogenous fluctuations from major customers and the downstream industrial environment. The two major factors that have suppressed revenue growth in the past 2 years: the impact of the pandemic on offline scenarios and fluctuations in refrigeration and large commercial customers have all come to an end in 23 years. Domestic macroeconomic indicators mostly picked up in January-February. If the consumption environment stabilizes and improves, offline FMCG channel launch is expected to return to the long-term expansion channel. Excluding fluctuations in major customers, the performance of overseas and small to medium customers has been remarkable in '23. The endogenous drive continues to increase, and the outlook for α and beta is positive.
Driven by endogenous growth, maintaining a “buy” rating
Hairong's revenue/net profit to mother in '23 were +10%/+41%, respectively, and the improvement in profitability exceeded expectations.
Looking ahead, the upward trend on the downstream demand side of the industry is quite certain. The company continues to make breakthroughs in new customers and new businesses, and endogenous growth is driven; overseas and customer hierarchies continue to expand, and order fluctuations may weaken in the long run. Overseas share has increased + scale growth. Sales investment is expected to be stable, and profitability may be stable at a historically high level. The company is expected to have net profit of 47/550 million in 24/25, +15%/+18% year-on-year, giving it 16 times PE in 2024, corresponding to a target price of 19.6 yuan, and a “buy” rating.
Risk warning: Raw material prices are rising, orders from major customers fluctuate, and downstream demand falls short of expectations.