2023 results are in line with our expectations
The company announced 2023 results: In 2023, the company's revenue was 4,049 million yuan, -16.2% year-on-year, net profit of 63 million yuan, or -53.1%, net profit of non-return to mother was 0.07 billion yuan, -89.3% year-on-year; of these, 4Q23 revenue was 974 million yuan, -2.6% year-on-year, and net profit to mother was 30 million yuan, compared to -210 million yuan in the same period last year. The results were in line with our expectations.
Development trends
Weak demand dragged down cheese revenue performance in '23, and the company's share continued to rise throughout the year. Dragged down by weak consumption, the company's cheese revenue in 4Q23 was -21% year-on-year and -6% month-on-month, putting pressure on performance. The year-on-year ratio of the company's cheese revenue in 2023 was -19%, mainly due to weak demand; by category, income from cheese sticks was -24% year over year, and household table income was -36% year over year. The decline in household income was higher than the overall main reason for the high performance of cheese chips in the home consumption scenario in '22, which led to a high base. Revenue growth in the food industry was steady under the high cheese base in '23, and still achieved 8% year-on-year growth. According to Kantar data, the company's share of cheese/cheese sticks in 2023 was 36.8%/42.8% respectively, up 1.0/1.7ppt from the previous year, demonstrating the company's strong brand strength and operational resilience as a leader in the industry.
Cost and scale effects weakened and dragged down gross profit margins, and the cost investment was basically in line with expectations. 4Q23's gross margin was 8.3ppt to 25% year over year, and the company's gross margin was 4.9ppt year-on-year, mainly due to rising costs, weakening scale effects, and a decline in the growth rate of cheese with high gross margins; by category, the gross margin of the cheese bar, family table, and catering industry business declined by 0.6ppt, 8.0 ppt, and 1.3ppt to 50.6%, 25.7%, and 12.3% year-on-year, respectively. The decline in household dining tables was mainly due to the high accumulation of expensive inventory and the decline in revenue. In terms of rates, 4Q's sales rate was -9.9ppt year-on-year (-2.3ppt year-on-year), mainly because the company actively controlled cost investment; while the 4Q management rate was negative on the reporting side due to the return of equity incentive expenses. Overall, the company's net profit margin was 1.6% in 2023, -1.2ppt year over year.
Pay attention to demand improvement and new product development, and wait for the company's operations to improve month-on-month. Looking ahead to 24 years, there is still uncertainty about the recovery in consumer demand. Cheese categories are greatly affected by consumer demand due to preferential choices. It is recommended to focus on subsequent improvements in market demand. In addition, over the past year, the company has continued to expand the room temperature cheese category. It has successively launched small cheese cubes, small cheese triangles, quadruple cheese corn chips, and cheese pudding. It is also recommended to pay attention to the company's revenue recovery as new products expand in the future. In terms of profit margins, considering falling costs, we expect the company's gross margin to improve year over year in '24, sales rates are expected to continue to decline, and profit margins are expected to increase year over year.
Profit forecasting and valuation
In view of weak demand, net profit for 24 was lowered to 153 million yuan, and net profit for 25 million yuan was introduced. The company traded 46/32 times the 24/25 P/E; the target price was reduced by 19.0% to 17 yuan, corresponding to 57/40 times 24/25 P/E and 23.7% upward space, maintaining the industry's outperforming rating.
risks
Demand is weak; competition is intensifying; new products are not performing as well as expected.