Incident: The company released its 2023 annual report. In 2023, the company achieved revenue of 42,667 billion yuan (YOY 28.4%) and net profit to mother of 12.079 billion yuan (YOY 42.2%). Furthermore, the company proposed a total of 8.435 billion yuan in dividends.
Results exceeded expectations, revenue and profit grew rapidly, and the balance sheet continued to reflect good demand.
Benefiting from the hard work of all employees, as well as adhering to technological innovation and long-term principles, the company surpassed expectations in 2023. Among them, on the gross profit side, the company's revenue increased by 28.36% year on year, benefiting from a decrease in procurement costs for cartons, labels and some raw materials compared to the same period last year, and gross margin increased by 2.10 pct year on year, resulting in a 33.05% year-on-year increase in gross profit. On the cost side, the company's sales expense ratio decreased by 1.77 pct year on year (mainly due to supply chain cost optimization), and the management expense ratio decreased by 0.45 pct year on year. The financial expense ratio was basically stable, so the overall cost ratio for the period decreased by about 2.22 pct year on year. In addition, the income tax rate was reduced by 0.12 pct year on year, and other income and revenue of $1,841 billion was achieved (YOY 7.7%, mainly an increase in interest income from time deposits). In the end, the company's net profit margin to mother increased by 2.75 pct year on year, corresponding net profit to mother increased by 42.19% year on year.
Furthermore, in 2023, the company's inventory was 3,092 billion yuan (2.08 billion yuan in the same period in '22), and contract liabilities were 3,585 billion yuan (2,677 billion yuan in the same period in '22). The company's inventory and contract liabilities have increased a lot compared to the same period in 2022, which we believe shows the good boom in the company's downstream demand to prepare goods.
Water continues to show strong strength, tea drinks are growing rapidly, and dual engines are growing strongly. In 2023, the company continued to maintain its leading position in the packaged drinking water industry and achieved rapid growth in tea drinks, further consolidating the dual-engine pattern of packaged drinking water and beverages. See the specific categories:
(1) Packaged drinking water products achieved revenue of 23 billion yuan (YOY 10.9%) in 2020. In 2023, the company increased its promotion of Nongfu Spring's high-quality water sources, and through commercials, consumers were able to further appreciate the unreplicable strategic layout of Nongfu Spring's national water source through decades of persistence. Furthermore, the company deepened the 4L handle bottle's natural aquatic product positioning as “more convenient for cooking” after cooking, and further expanded the usage scenarios of aquatic products. We believe that the basic market of the company's packaged water business is stable and the layout of categories and scenarios is complete. We expect to benefit from the continued recovery in offline traffic and consumption power in 24, and we are optimistic that the packaged water business will continue to grow steadily.
(2) The company's tea drink products achieved revenue of 12.659 billion yuan (YOY 83.3%) in '23, and the scale of tea drinks exceeded 10 billion for the first time. Among them, “Oriental Leaves” continues to have a rich layout of tea products to meet the needs of consumers in more scenarios. Furthermore, for the first time, the company tried to launch a brand series of short films on the theme of 24 solar terms to consolidate the brand positioning of “Oriental Leaf Chinese Tea”. We believe that the company currently has two major 10 billion products, packaged aquatic products and tea drink products. Currently, its platformization capabilities and competitive advantage are remarkable. As the acceptance of sugar-free tea continues to increase in the future and the overall scale of the tea beverage industry continues to expand, we expect the company's tea drinks to continue to develop rapidly and achieve further breakthroughs in scale.
(3) In '23, the company's energy drink products achieved revenue of 4.902 billion yuan (YOY 27.7%). The company “Scream” Drinks has joined forces with the Chinese University Basketball League and continues to cultivate the professional mentality of “Isotonic Scream” in the field of sports. Meanwhile, “Power King” Vitamin Water launched a prune peach flavor and grapefruit compound flavor, and launched an early tasting promotion campaign on the theme of “New Taste, New Vitality” to enhance awareness of the functions of vitamin water. We believe that as consumer awareness of energy drinks continues to increase, the energy drink market will continue to expand in the future. The company's “Scream” and “Power King” vitamin cards are good, and we look forward to continuing to benefit.
(4) In '23, the company achieved revenue of 3,533 billion yuan (YOY 22.7%). Among them, the “17.5°” juice brand launched season-limited freshly squeezed orange juice, making a further breakthrough in freshness. The “NFC” series launched a 900ml large bottle of 100% NFC guava blend juice to enrich the product matrix and meet consumer needs. Since its launch, it has been widely loved and praised by consumers. We believe that juice products have strong festive attributes, and travel traffic was good during the Spring Festival in '24. It is expected that in '24, the company's juice business will continue to benefit from sales opportunities brought by better travel traffic during the Spring Festival schedule.
Profit forecasting and investment advice. We expect the company's total revenue for 2024-2026 to be 505.46/595.04/69.692 billion yuan, respectively, and the net profit forecast to mother is 143.79/169.47/201.56 billion yuan, respectively, and the corresponding EPS is 1.28/1.51/1.79 yuan/share, respectively.
We believe that, with reference to the PE valuation of comparable companies, and considering that the company itself is still in a good growth stage, we continue to give the company a PE (2024E) valuation range of 30-35 times, corresponding to a value range of 38.40-44.80 yuan/share, based on the Hong Kong dollar to RMB 0.90 exchange rate, corresponding to a reasonable value range of 42.67-49.78 HKD/share, and continue to maintain the “superior to the market” rating.
Risk warning. (1) Market demand declined, (2) product promotion fell short of expectations, (3) raw material prices fluctuated, and (4) food safety issues.