Key points of investment
The company announced 23 annual results: in 2023, the company's revenue was 98.624 billion yuan, +6.5% year over year; operating profit was 6.171 billion yuan, +13.8% year over year; net profit to mother was 4.809 billion yuan, -9.3% year over year. 2023H2 revenue was 47.51 billion yuan, +5.87% year over year; operating profit was 2,896 billion yuan, -0.25% year over year; net profit to mother was 1,789 billion yuan, +15.28% year over year. Excluding the influence of Mikolando's merger, the company's revenue in '23/23H2 was 945.8/45.52 billion yuan, +2.56%/+2.33% year-on-year. OPM increased steadily, and net profit to mother was slightly lower than expected.
The structure of large white milk products has been upgraded, and the low temperature performance is better than that of the industry: liquid milk/milk powder/ice cream/cheese/other revenue was +4.86%/-1.56%/+6.61%/+229.8%/-32.13%, respectively; 2023H2 liquid milk/milk powder/ice cream/cheese/other revenue was +4.73%/-3.1%/-1.8%/+170.9%/-24%.
We expect Terunsu's revenue to grow faster than basic white in '23, and the structural upgrade of white milk products will continue; we expect the overall performance of low temperature to be better than the industry. Among them, fresh milk revenue grew faster year on year, and low-temperature acid revenue bucked the trend and achieved positive growth.
OPM increased steadily, and net interest rates due to non-financial pressure: Under the favorable decline in costs, the company's gross margin was +1.85pct year-on-year to 37.15% in '23. The company's sales/management expense ratio in '23 was 25.54%/4.81%, +1.41 pct/+0.01pct. The increase in sales expenses was mainly due to the resumption of offline marketing activities after the epidemic. Among them, the advertising expenses rate in '23 was +1.7 pct. Under optimized gross margin, the company's OPM in '23 was +0.4 pct to 6.26% year over year, and OPM increased steadily. Affected by factors such as a decrease in net fair value earnings from sales of subsidiaries and payable bonds and an increase in tax rates after overseas dividends, the company's net interest rate returned to mother was 4.88% in '23, -0.85pct year on year.
Capital expenditure declined and dividend rate increased: the company's capital expenditure in '23 was 4.17 billion yuan, -17.8% year-on-year.
The company focuses on shareholder returns. The company's share repurchases totaled HK$795.6 million in '23, and the dividend payout ratio is expected to increase from 30% to 40% in '23.
Veteran Mengniu is the new CEO and is expected to enter a new stage of development: The company's board of directors announced that from March 26, 2024, Lu Minfang will be appointed as Vice Chairman of the Board of Directors and stepped down as the company's President and Executive Director. Gao Fei joined Mengniu in 1999 and has held positions such as regional manager, center manager, general sales manager, and general marketing manager of the sales and marketing department. Since 2016, he has been the group's vice president and head of the room temperature division. We believe that Gao Fei is a veteran hero of Mengniu, and is also a sales backbone that has cultivated talents within the company. It is expected that this personnel change will smoothly transition as old Mengniu people take over.
Profit forecast and investment rating: The company's 23-year performance was slightly lower than expected. We lowered the company's 24-26 revenue forecast to 1011/1056/110.6 billion yuan (the previous 24-25 forecast was 1115/122.4 billion yuan), +3%/4%/5% year-on-year, and lowered the net profit forecast to mother to 56/66.6 billion yuan (previously estimated to be 667.6 billion yuan 24-25), +17%/+9%/+8%, corresponding to PE in 24-26, 11/10/9x, maintaining a “buy” rating.
Risk warning: Macroeconomic downturn, competition pattern worsens, raw material prices have risen sharply, and the epidemic is repeated