2023 results are largely in line with market expectations
The company announced 2023 results: revenue of 13.93 billion yuan, +9.0% year on year, adjusted net profit of 780 million yuan, +6.4% year on year; corresponding 2H23 revenue of 6.95 billion yuan, +1.8% year on year, adjusted net profit of 260 million yuan, +6.7% year on year. The results are generally in line with market expectations.
Development trends
2H23 ANC and PNC continued to maintain strong growth, and BNC growth was under pressure. 2H23's revenue increased 1.8% year over year, and the growth rate declined slightly from month to month. By business, 2H23's ANC and PNC revenue increased by 28% and 18%, respectively, and continued to grow strongly. BNC revenue declined 20% year over year. 1) On the ANC side, benefiting from increased demand for health products and the company's strong brand operation (the Swisse “1+3” brand strategy was launched in '23 to increase the penetration rate of consumers of all ages), Swisse China's revenue in '23 was +37.4% year-on-year in a comparable scale. The performance was better than the industry, and the share increased significantly; 2H23 Australia and New Zealand benefited from the expansion of new channels and the resumption of revenue in the purchasing market. The performance was also impressive. 2) On the BNC side, due to factors such as the decline in the number of newborns and the switch between old and new national standards, 2H23 infant formula revenue continued to decline. In addition, probiotic channel inventory removal also had an adverse effect. Year-round infant formula and probiotic income were -15% and +9%, respectively. 3) In terms of PNC, 2H23's business in China and the US both performed well, and PNC's revenue for the whole year increased 22.5% year-on-year.
ANC improved the Group's EBITDA margin in '23, and increased financial expenses dragged down profit growth.
Benefiting from improved product structure and increased revenue scale effects, the ANC EBITDA margin (adjusted, same below) increased by 3.8ppt to 20.9% year on year; on the BNC side, due to inventory impairment and revenue decline in the first half of the year, the 23 EBITDA margin decreased by 1.8ppt to 15.1% year on year; while the PNC business was still in the investment period, the EBITDA margin also decreased by 2.3 ppt to 2.1% year on year.
Benefiting from ANC's good performance, the Group's EBITDA margin improved by 0.5ppt to 15.9% year-on-year in '23. Financial expenses increased by 250 million yuan to 770 million yuan year-on-year in '23, partly dragging down profit growth.
The ANC business is expected to continue to grow steadily in '24, and financial expenses are expected to improve. Looking ahead to 24 years, despite being influenced by the high base, benefiting from the company's Swisse “1+3” brand strategy and channel expansion, we expect ANC revenue to maintain double-digit growth and drive a steady overall revenue growth rate; in terms of profit margin, taking into account the company's cost investment and BNC profit margin restoration in order to continue to enhance Swisse's brand power, we expect the Group's EBITDA margin to rise steadily over the same period last year; in addition, the company will continue to gradually reduce financial leverage as planned through improvements at the management level. It is anticipated that there is room for improvement in financial expenses in '24 compared to year.
Profit forecasting and valuation
The company traded 6.4/5.2 times 2024/25 P/E. The 2024/25 profit forecast is basically maintained; the target price is maintained at HK$12.5, which corresponds to 7.6/6.2 times the 2024/25 P/E and 19% share price upward space. Maintain outperforming industry ratings.
risks
Demand is weak; competition intensifies; new product expansion falls short of expectations.