Incident: The company released its 2023 annual report, achieving operating income of 42,667 billion yuan, +27.4% year-on-year, and net profit to mother of 12.079 billion yuan, +42.2% year-on-year.
Comment:
Revenue from packaged drinking water is growing steadily, and tea drinks continue to grow at a high rate. 2023H2 achieved revenue of 22.204 billion yuan, +37.5% year-on-year, with a month-on-month acceleration. By category, 2023H2 packaged drinking water revenue was +10.2% YoY to 9.82 billion yuan, and annual revenue +10.9% YoY to 20.062 billion yuan, breaking the 20 billion yuan mark. 2023H2 tea drink revenue was +104.9% YoY to 7.373 billion yuan, and +83.3% year-on-year to 12.659 billion yuan, breaking through the 10 billion yuan mark. We believe that it is mainly due to healthy consumption trends. Unsweetened Oriental drinks continue to explore the market, consumer repurchases have increased dramatically, and low-sugar tea pi has maintained good growth through market downturn. 2023H2 energy drink revenue +34.6% YoY to 2,444 billion yuan, and annual revenue +27.7% YoY to 4.902 billion yuan. 2023H2 juice beverage revenue was +15.2% YoY to 1,848 billion yuan, and annual revenue +22.7% YoY to 3,534 billion yuan. In terms of other products, revenue in 2023 was -3.2% to 1,311 billion yuan. We believe that the main company continued its strategy of focusing on operating efficiency and resources, and therefore paid more attention to recovering, training, and consolidating the basic capabilities of the sales team after being affected by the external environment.
Cost reduction+supply chain optimization, shareholders' profit margin increased to 28%. In 2023, the company achieved profit attributable to shareholders of 12.079 billion yuan, +42.2% year-on-year. The profit margin attributable to shareholders was +2.8pct year-on-year to 28.3%, and profitability increased dramatically. We believe there are two main reasons. On the one hand, raw material prices declined, and the company's gross margin was +2.1pct to 59.5% year over year. On the other hand, benefiting from supply chain cost optimization+scale effects, the sales expense ratio was -1.8pct to 21.8% year over year, and the management expense ratio was -0.5pct to 5.1% year over year.
Profit prediction and investment rating: The company is deeply involved in packaging natural water, but is not limited to a single category. Under the concept of “natural and healthy”, the company continues to improve the layout of categories such as tea drinks, energy drinks, juice drinks, coffee drinks, etc., and has become a rare beverage company that can operate in multiple categories. We believe that the reflection behind this is not only the company's strategic vision in category selection, product creation, brand building, and team execution ability, but also its long-term persistence and dedication. Based on our confidence in the company's continued growth in packaged drinking water and the rapid growth of the tea and beverage business, we expect EPS of $1.33, $1.58, and $1.81 respectively in 2024-2026, corresponding to the closing price of March 29, 2024 (HK$42.25 per share, RMB 38.87 per share) PE is 29, 25, and 22 times, and the valuation is at a low level, giving a “buy”.
Risk factors: Sales growth falls short of expectations after the improvement of old products or the launch of new products, fluctuations in raw material prices