Incident: Mycorando releases its 2023 annual report. In '23, we achieved operating income of 4.05 billion yuan, -16.2% year on year; net profit to mother of 60 million yuan, or -53.1% year on year; net profit after deducting non-return to mother of 0.1 billion yuan, -89.3% year on year. Among them, 23Q4 achieved operating income of 970 million yuan, -2.6% year on year; net profit to mother of 0.3 billion yuan, which turned a year-on-year loss into a profit; net profit after deducting non-attributable net profit of 0.1 billion yuan, which turned a year-on-year loss into a profit.
The decline in ready-to-eat nutrition and table cheese 23H2 revenue has narrowed, and new product acceleration is expected to help C-end cheese recover.
1) By product, in 2023, the company's cheese/liquid milk/trade products achieved revenue of 3137/334 million yuan, respectively, -18.91%/-5.44%/-4.32%. Among them, ready-to-eat nutrition and family table series were affected by weak consumption, and revenue fell 23.93%/36.10% in 23, respectively, but the 23H2 decline was narrower than 23H1. The ready-to-eat nutrition series was mainly dragged down by low-temperature cheese sticks. In '23, room temperature cheese sticks benefited from channel expansion and the scene broke through circles to bucked the trend. The catering supply series relied on the company's supply chain advantages and the recovery of the food and beverage consumption scenario, and revenue increased 7.61% year-on-year in '23. The company's current product planning closely revolves around expanding the consumer base and expanding the consumption scenarios that are just needed.
For example, room-temperature cheese sticks have entered the mass sales system, using the rapid expansion of channels to increase the reach of consumers; ready-made foods containing cheese, such as black golden beef rolls, frozen European buns, etc. have been introduced to increase consumption scenarios such as brunch. Furthermore, in December 2023, the company introduced 3 new cheese snacks: quadruple cheese corn chips, small cheese triangles, and cheese pudding, which have enriched the product matrix and are expected to contribute a certain increase in revenue over 24 years.
2) By region, the company's revenue in the North District/Central District/South District in 2023 was -23.79%/-9.59%/-11.73% year-on-year.
In terms of channel construction, by the end of 2023, the company had 5036 dealers, covering 800,000 retail sales terminals; of these, the number of 23Q4 dealers increased by a net of 182 compared to the end of 23Q3.
Cost reductions offset gross margin pressure, and 23Q4 net profit margin improved year over year.
1) The gross margin of the 23/23Q4 company was 29.24%/24.97%, respectively, -4.92/-8.3 pcts year over year, mainly affected by rising raw cheese prices and exchange rate fluctuations. 2) In 23/23Q4, the company's sales expenses rate was 23.18%/21.12%, compared with -2.06/-9.86pcts, mainly due to the reduction in the company's advertising and promotion expenses and warehousing and logistics expenses. 3) The 23 year/23Q4 management fee rates were 3.66%/-2.57%, respectively, compared with -1.38/ -2.07pcts compared to the same period, mainly due to a reduction in equity incentive costs, consulting service fees, etc. 4) Overall, the company's net sales margin reached 1.97%/3.04% in '23Q4, -1.62/+2.61pcts year-on-year.
Major shareholders continue to increase their holdings, and cheese assets are about to be injected.
From September 1, 2023 to March 1, 2024, the controlling shareholder Mengniu increased its holdings by 6.8973 million shares, accounting for 1.34% of the total share capital, and an increase of 125 million yuan. After the increase in holdings was completed, Mengniu's shareholding ratio was 36.51%, reflecting the controlling shareholders' confidence in the company's future continuous development and recognition of long-term investment value, which is conducive to boosting investor confidence. In May 2023, the controlling shareholder Mengniu postponed injecting the cheese business into Mikolanduo, that is, before July 9, 2024. After completing the asset injection, it is beneficial to avoid competition in the same industry and enhance the performance of Miocolanduo. It is recommended to focus on progress.
Profit forecast, valuation and rating: Considering that there is still uncertainty about the recovery of terminal consumption power, the company's net profit forecast for 24-25 was lowered to 1.69/231 million yuan (down 5%/16% from the previous period), and the net profit forecast for the year 26 was 289 million yuan. The current stock price corresponding to 2024-26 PE is 40x/29x/24x, respectively. Considering that the company's C-end cheese leadership position is still stable and the cheese industry has plenty of room to grow, we maintain the “gain” rating.
Risk warning: Production capacity release falls short of expectations; growth of new products falls short of expectations; raw material prices rise; food safety.