Incident: The company released its 2023 annual report on March 26. Affected by market changes, the full year of 2023 achieved operating income of 4,049 billion yuan, -16.2%; net profit to mother was 63.44 million yuan, or -53.9% year-on-year due to changes in the raw materials market and exchange rate fluctuations; net profit after deducting non-return to mother was 7.17 million yuan, -89.6% YoY, and profit was higher than the previous performance forecast center. Among them, Single 23Q4 achieved operating income of 970 million yuan, -2.7% year-on-year; net profit attributable to mother and net profit after deducting non-net profit of 2956/9.08 million yuan respectively, turning a loss into a profit over the previous year.
The C end declined and the B side slowed down, and Q4 launched a new cheese snack series to renew the product line. By business, the company's cheese/trade/liquid milk achieved revenue of 31.37/567/333 million yuan respectively, or -18.9%/-5.4%/-4.3% year-on-year; the cheese sector declined by double digits in '23, but the decline in the second half of the year was narrower than in the first half of the year. Due to the double impact of the scale effect weakening and compounding raw material market conditions and exchange rate fluctuations, the cost of major raw materials increased compared to the same period last year, leading to a year-on-year decline of 3.72 pcts in the gross margin of the company's cheese sector. Under the cheese business segment, the ready-to-eat nutrition/home table/ catering industry achieved revenue of 19.01/3.48/888 million yuan respectively, -24.0%/-36.1%/+7.6% year-on-year. ① The ready-to-eat nutrition series, represented by low-temperature cheese sticks, has declined at an accelerated pace in 23 years. Room-temperature cheese sticks have benefited from channel expansion and broken scenes to bucked the trend. ② The revenue of the family table series, which is represented by cheese slices and focuses on the breakfast scene, declined in 23, but the decline narrowed month-on-month in the second half of '23. ③ Benefiting from the recovery of the travel chain and the recovery of the food and beverage consumption scenario, the overall catering industry series continued to grow but also decelerated.
Expand channels and break the scene, and actively lay out new retail channels. Looking at the subregion, the North District/Central District/South Region were -23.8%/-9.6%/-11.7%. By sales model, the company's distribution/direct operation/ trade ratio was -15.16%/-29.22%/-5.44%. The company is actively seeking changes in the channel model, vigorously developing special channels for baking, snack sales, mother and child, etc., and increasing resource investment in new retail channels. In terms of number of dealers: At the end of '23, the company had a total of 5,036 dealers, a decrease of 182 throughout the year, and the sales network covered about 800,000 retail terminals.
Rising costs are putting pressure on gross margins, and Q4 active fee control+equity incentive costs are rushing back to improve profit levels. The gross profit margin in '23 was 29.24%, -4.92 pcts year over year. Net profit margin was 1.57%, -1.24pcts year over year. The decline in profitability is mainly due to the decline in the share of cheese bars, which are high-margin products, and the prices of raw materials such as cheese have risen. On the cost side, the company's sales/management expense ratio in 23 years was 23.18%/3.66%, -2.06pcts/-1.38pcts year-on-year. Among them, single Q4 was 21.1%/-2.6%, compared to -9.86/2.07 pcts. The company actively reduced sales expenses in the fourth quarter, and equity incentive expenses surged back in Q4 to improve profit levels.
Investment advice: The company actively strengthens brand building. According to Kantar statistics, its share of the cheese market continued to increase in 23 years, ranking first. With the launch of many new C-side products in the form of snacks in Q4, the future product side suggests focusing on the company's C-side high-margin product form innovation and new product feedback. The channel side develops new retail channel scenarios and creates specialized service advantages in the B-side catering supply chain, which may bring the company out of trouble. The company's net profit for 24-26 is estimated to be 1.3/1.8/230 million yuan, respectively, +98.4%/39.3%/31.7% year-on-year. The P/E corresponding to the current stock price is 56/40/31X, respectively, maintaining the “recommended” rating.
Risk warning: Food safety issues, rising raw material prices, increased competition in the cheese industry, and sales of new products falling short of expectations.