2023 results are in line with market expectations
The company announced its 2023 results: revenue of 19.53 billion yuan, -8.3% year-on-year, net profit of 3.39 billion yuan, or -31.4%; corresponding to 2H23 revenue of 9.80 billion yuan, -15.8% year-on-year, and net profit of 1.69 billion yuan, year-on-year. The results fell within the previous performance warning announcement range, in line with market expectations. In addition, the board of directors of the company proposed a dividend of approximately $2.36 billion for 2023 (of which $1.14 billion for the medium term and $1.22 billion for the final term), with a dividend payout ratio of 70%, which is in line with market expectations.
Development trends
2H23 was influenced by a high base, weighed by year-on-year growth, and the company's share increased further in '23. 2H23's revenue growth rate was -15.8% year-on-year, mainly due to pressure from industry sales growth and the impact of 2H22's high base.
According to Nielsen data, offline channel sales in the infant formula industry were -18%, and Feihe's sales performance was better than the industry, with a market share of about 23% in 23, achieving a further increase in share over the same period last year. Furthermore, with online channels, the company's e-commerce sales reached 4.68 billion yuan in 23, +13.7% year-on-year. Online performance was also significantly better than the industry's, demonstrating the company's strong brand strength and business resilience as an industry leader. Looking at the full year of '23 by category, the company's ultra-high-end, high-end, and ordinary revenue was -1%, -24%, and -32%, respectively. The performance of ultra-high-end products was still better than the overall performance. In terms of new products, the company previously launched ultra-high-end new products such as Starfly Zhuorui and Zhuo Yao to create a Starflight product matrix. Zhuorui's revenue share in '23 (about 15% in '22) was maintained, maintaining a good sales momentum.
Expenses and the original environment dragged down net interest rates. 2H23 net interest rates were under year-on-year pressure and remained basically flat month-on-month.
2H23's gross margin was +0.6ppt to 64.3% year-on-year, and -1.0ppt month-on-month, and gross margin remained relatively stable. Affected by the increase in advertising and promotion expenses, the 2H sales rate was +3.9 ppt year over year, while the 2H management rate increased 2.7 ppt year over year due to increased wages and R&D expenses. Furthermore, due to the increase in losses due to fair value reduction of original biological assets and changes in sales costs, the overall net interest rate of 2H23 Company was -5.8ppt to 17.3% year over year, which was basically the same month on month.
Industry growth may still be challenging in 2024, and revenue and performance may be expected to be relatively steady as share increases. Looking ahead to 24, we believe that there is still some uncertainty about the recovery of the demand side of the industry due to the decline in the number of births in previous years; on the supply side, along with the new national standard, was implemented in February 23, we expect small and medium-sized brands to sell out their share after 23 years of inventory removal. The company launched electronic fence control product terminal prices in February this year. Currently, channel feedback has had an obvious effect on price stability; we expect the company's share to continue to increase in 24, and revenue and performance may be relatively steady in 24 years.
Profit forecasting and valuation
The company traded 8.6/7.6 times 2024/25 P/E. Considering weak demand, the 2024 profit forecast was lowered by 29.3% to $3.45 billion, and the 2025 profit forecast of $3.72 billion was introduced; the target price was reduced by 25% to HK$4.5, corresponding 10.5/9.3 times the 2024/25 P/E and 22.3% upward space.
Maintain outperforming industry ratings.
risks
Newborn numbers fall short of expectations; demand is weak; competition intensifies.