Incident Overview
In '23, we achieved revenue of 4,049 billion yuan, -16.2% year-on-year, net profit to mother of 63 million yuan, or -53.9% year-on-year, net profit after deducting net profit of 0.7 billion yuan, or -89.6% year-on-year. 23Q4 achieved revenue of 974 million yuan, -2.7% year-on-year, net profit of 30 million yuan, compared to the same period last year of -08 billion yuan, net profit of not attributable to mother of 0.1 million yuan, +142% year-on-year. The company's revenue scale is still under pressure, and profits are in line with market expectations.
Analytical judgment:
The decline on the C-side narrowed in the second half of the year, and the B-side took the lead in recovering
23FY cheese/ trade/ liquid milk were -18.9%/-5.4%/-4.3%, respectively, and 23Q4 cheese/ trade/ liquid milk were -9.3%/+25.4%/+4.4%, respectively, all showing significant recovery in the second half of the year. The 23FY ready-to-eat nutrition/home table/ catering industry in cheese was -23.9%/-36.1%/+7.6%, respectively, and the 23H2 ready-to-eat nutrition/home table/ catering industry was -23.1%/-33.3%/+1.4%, respectively. The B-side's pioneering recovery is inseparable from macroeconomic recovery and the company's product upgrades and technological innovation. The decline in the C-side narrowed in the second half of the year. Under long-term cultivation, cheese snacks already have the potential to become the second largest growth pole in the ready-to-eat nutritious cheese series, and the family table cheese product matrix has also been more widely recognized.
23FY North District/ Central District/ South District revenue was -23.8%/-9.6%/-11.7%, 23Q4 North District/ Central District/South District revenue was +7.7%/+6.4%/-30.3%, respectively. At the end of 23, the number of dealers in the North District/Central District/South District was -305/+62/+61, and the sales network covered about 800,000 retail terminals (same year over year). In '23, the company carried out hierarchical dealer management for offline retail channels, optimized the distribution of dealers across the country, further improved operating efficiency, and effectively increased single store output; expanded network coverage, increased display area, enriched product matrices for distribution channels, vigorously developed special channels such as baking, snack sales, mother and child, etc., and increased resource investment in new retail channels.
The product structure is still under pressure
The gross margin of 23FY/23Q4 was 29.2%/25.0%, respectively, -4.9/-8.3pct. We judge that demand for high-margin single products and C-side consumer demand is still under pressure, mainly due to the impact of product structure. The 23FY/23Q4 sales expense ratio was -2.0/-9.9pct, respectively, mainly due to a decrease in advertising promotion (-32.6% compared to the same period). We believe that the reason behind the detailed control of company expenses and the demand for cost investment is relatively low when the B-side demand recovery trend is better. The 23FY/23Q4 management expense ratio was -1.3/-2.1pct, respectively. We expect a sharp reduction in equity incentive expenses mainly due to equity.
23FY/23Q4 net interest rates were 2.0%/3.0%, respectively, -1.5/+2.8pct year-on-year, respectively. We believe that the pressure on performance was mainly due to the decline in gross margin.
Major shareholders attach importance to the cheese business and strive to expand the table cheese and cheese snack scene. In the performance announcement, majority shareholder Mengniu expressed a long-term strategic plan to dig deeper into the demand layout of various raw milk industry chains. Shareholders' strategic emphasis on the second curve of cheese is beneficial for the company to expand demand resources in the B-side catering supply chain, and on the other hand, cost and management collaboration is expected to continue to unleash performance advantages. Currently, we believe that the C-side cheese business is still recovering, and we look forward to the company's future efforts to expand the table cheese and cheese snacks category, and achieve better consumer demand expansion and cultivation while maintaining the cheese category's leading market share.
Investment advice
According to the adjusted profit forecast based on the annual report, it is predicted that the operating income for 24-25 will be lowered from 52.64 billion yuan to 47/5.3 billion yuan, an increase of 6.2 billion yuan in operating income for 26 years; the projected net profit due to mother will be lowered from 1.5/230 million yuan to 100.110 million yuan, an increase of 140 million yuan in net profit for 24-26; EPS will be reduced from 0.29/0.46 yuan to 0.20/0.22 yuan in 24-26, and an additional EPS of 0.28 yuan for 26 years. The closing price of 13.36 yuan on March 29, 2024 corresponded to a P/E of 68/60/47 times, respectively, maintaining the “gain” rating.
Risk warning
The macroeconomic downturn affects consumer demand; food safety issues; demand falls short of expectations during peak seasons; competition within the industry intensifies; there are regulatory penalties in March 2020, August '21, and August '23.