The 2H23 results were largely in line with market expectations.
The company announced 2023 results: revenue of 4.87 billion yuan, +5.2% year on year; net profit to mother of 800 million yuan, +481.8% year on year; adjusted net profit of 970 million yuan, +6.3% year on year. This corresponds to 2H23: revenue of 2.54 billion yuan, +7.3% year on year; net profit to mother of 430 million yuan, +5.1% year on year; adjusted net profit of 470 million yuan, -3.1% year on year.
Development trends
The acceleration in 2H23 revenue growth is related to the volume of new channels launched. 2H23 revenue from seasoned noodles/vegetables/soy products and other products was approximately RMB 1,26/11.85/100 million yuan, respectively, or -8.6%/+35.4%/-16.9% compared with the same period last year. Looking at volume and price splitting, the sales volume of the three types of 2H23 products was -9.5%/+65%/-15%, respectively, and the average sales price (sales/sales volume) was +1.0%/-18.2%/-2.1%, respectively. We expect that the 2H22 base has returned to a relatively normal level. Starting in May 2023, Weilong will begin to set up a snack sales channel (we expect the company's 2023 snack sales channel revenue to be nearly 400 million yuan). Additionally, in September/October/December, the company launched Overbearing Spicy Spicy Strip, Little Witch, a new konjac product, and Crispy Spicy Chips, which also contributed to some of the increase.
2H23 gross margin increased to 47.8% month-on-month, but expenses and tax rates increased, and 2H23 net margin fell to 17% month-on-month. 2H23's production-side efficiency improved, and 2H23 gross margin was +1.5ppt month-on-year. The 2H23 sales expense ratio reached 17.3% (+5.3/+1.9ppt month-on-year, respectively). We expect this is related to the increase in the number of sales staff and the increase in new product promotion expenses.
2024 outlook: Revenue growth will accelerate, driven by new channels and products. Channel: The company began strengthening the connection with the snack discount store channel around April 2023. Starting in May 2023, we expect the snack sales channel to contribute more than 800 million yuan in revenue in 2024. Product side: The three new products launched by 2H23 currently have good market feedback. We expect the revenue volume to exceed 1-2 billion yuan in 2024, thereby contributing to revenue growth.
Profit forecasting and valuation
In view of the acceleration of new product promotion and increased cost investment, we lowered our 2024/25 profit by 4.9%/5.6% to 1,05/1,144 billion yuan. The current share price corresponds to 11.8/9.9 times 2024/25 P/E. Maintaining an outperforming industry rating, despite a slight decline in earnings, we maintained our target price of HK$7.3, corresponding to 15.2/12.7 times the 2024/25 P/E, which is about 28.5% upward compared to the current stock price.
risks
New product growth falls short of expectations, demand from traditional channels continues to be under pressure, and food safety risks.