occurrences
The company announced its 2023 annual report. For the full year of '23, the company achieved total revenue of 4,049 billion yuan, net profit to mother of -16.16%, net profit to mother of 63 million yuan, or -53.90% year-on-year, net profit not attributable to mother. In 23Q4, the company achieved total revenue of 974 million yuan, -2.65% year-on-year, net profit to mother of 30 million yuan (22Q4 was -0.06 billion yuan), and net profit of non-return to mother of 190 million yuan.
23Q4 performance improved, with revenue growth in North District and Central District
1) The year-on-year decline in 23Q4 revenue was narrower than in Q3, and net profit due to mother reversed year-on-year losses and increased month-on-month. The company's revenue in 23Q4 was -2.65%, and the decline was 15.65pct narrower than 23Q3. Net profit to mother reversed year-on-year losses, and increased 456.45% month-on-month.
2) Revenue from the liquid milk business increased year-on-year in 23Q4, and the revenue of room temperature cheese sticks and cheese in the catering industry increased throughout '23. 23Q4's cheese/liquid milk/trade achieved revenue of 7.21/0.90/160 million yuan, respectively, of -21%/+19%/+1199% year-on-year, respectively. The revenue for the full year of '23 was -19%/-4%/-5% year-on-year respectively. The company's cheese revenue declined due to changes in the market environment in '23, but room temperature cheese sticks benefited from channel expansion and bucking the trend; cheese in the catering industry achieved revenue of 888 million yuan, +7.61% over the same period last year.
3) The North and Central Districts achieved positive growth in 23Q4. 23Q4's North District, Central District, and Southern District achieved revenue of 348/4.45/179 million yuan respectively, +8%/+6%/-30% year-on-year; revenue for the three regions over the full year of '23 was -24%/-10%/-12%, respectively.
4) The company continues to promote channel cultivation. The company's hierarchical management of dealers and optimized the dealer layout. At the end of '23, the number of dealers was 5036 (a net decrease of 182 compared to the beginning of the year), covering about 800,000 retail terminals; e-commerce channels vigorously developed e-commerce platforms such as Douyin and Kuaishou to expand instant retail formats such as Meituan and Hungry; the catering industry terminal development results were obvious, and good cooperation was established with Master Bao, Lele Tea, and Grandma's.
Profit margins in '23 are under pressure in the short term, and are now improving in 23Q4
1) Short-term pressure on gross margin in '23 affects the company's net interest rate level. For the full year of '23, the company's net margin/gross margin was 1.97%/29.24%, respectively, -1.62/-4.91pct; sales/management/R&D/finance expense ratios were 23.18%/3.66%/1.12%/0.63%, respectively, and -2.06/-1.05pct, respectively; in addition, other income and income tax expenses accounted for +0.82/-1.19pct of total revenue, respectively. The decline in the company's gross margin was mainly affected by double fluctuations in raw material market conditions and exchange rates. The gross margin of the cheese and trade sectors declined, and the gross margin of the cheese/trade/liquid milk sector was -3.72/-8.80/+0.64pct, respectively, year-on-year in '23.
2) Expense ratio optimization during the 23Q4 period led to an increase in net interest rates. 23Q4's net margin/gross margin was 3.04%/24.97%, respectively, +2.62/-8.30pct year-on-year; sales/management/R&D/finance expense ratios were -9.87/-2.06/-0.98/+0.85pct, respectively.
3) Non-recurring income is mainly government subsidies, investment income, etc. In '23, the company's non-recurring revenue totaled RMB 56 million, including government subsidies of RMB 48 million and investment income of RMB 26 million, which included current profit and loss.
The cheese market still has sufficient long-term potential. The company's product strength and market share are still in the early stages of growth, and there is great potential for growth in the long term; the company's cheese and cheese stick market share remained the top in the industry in '23, at 36.8%/42.8%, respectively, up 1.0/1.7 pct from '22; the company had sufficient R&D activity and launched new products such as organic cheese, mousse cheese cups, and cheese pudding in '23.
Investment advice
We expect the company's net profit to be 1.25/175/227 million yuan in 24/25/26, respectively, with a growth rate of 97.28%/35.83%/33.51%, corresponding to 56/42/31 times PE on March 26 (market value of 7.1 billion yuan), maintaining the “buy” rating.
Risk warning
Food safety risks, increased market competition risks, and raw material price fluctuations.