2023 results are in line with our expectations
The company announced its 2023 results, achieving operating income of 11.39 billion yuan, up 0.7% year on year, net profit of 360 million yuan year on year, up 11.9% year on year, adjusted net profit of 340 million yuan, up 1.1% year on year, in line with our expectations. Among them, 1H23 and 2H23 revenue were +6.4%/-5.6% respectively, and adjusted net profit was +23.5%/-33.1% respectively. The second half of the year was affected by sales pace and consumer environment.
Development trends
1. 443 net stores were opened in 2023, and single stores were under pressure. The company's revenue for 23 years was 11.39 billion yuan, which was basically the same. In terms of the 2C business group: 1) Stores opened: 241/209/-7 franchised/self-operated stores managed by the company were 241/209/-7 to 4818/1263/12, respectively. The total number of stores increased net of 443 to 6093 at the end of the period. 2) Single store: We calculate that in '23, the revenue contribution of a single store was 1.456 million yuan, a year-on-year decrease of 11%. We believe it was mainly affected by the combined effects of store sinking, consumption environment, and business adjustments. 24 was the first year of the company's strategic transformation. Same-store growth was an important goal, and we focused on the recovery situation.
2. Member operation and online and offline integration are progressing steadily. The company continues to operate public and private memberships. At the end of 2023, the number of members/paid members increased by 13%/21% to 83.91 million, respectively. We expect to drive customer base stickiness and customer unit prices to improve. In addition, the company is actively expanding the OMO model and content e-commerce sector. The proportion of online orders reached 27.6% in 2023. Among them, the number of orders placed by the key Douyin channel increased 190% in 23, and GMV is at the top of the platform list.
3. The cost-side optimization effect is obvious. The company's gross margin decreased slightly by 0.1ppt to 11.5% year-on-year in 2023, and the sales/management/ R&D expense ratios were 4.2%/2.8%/1.3%, respectively, and decreased by 0.2/0.1/0.3ppt, respectively. The main reason was the TMS system update and launch, distribution route optimization, transportation costs were reduced, and reasonable manpower was outsourced to save costs. Under the combined influence, the company's 2023 net interest rate/adjusted net interest rate achieved 3.2%/3.0%, an increase of 0.32/0.01ppt, respectively.
4. The industrial chain layout is deepening, and the 2B business contribution is growing. 1) In terms of category business groups, the company had a total of 37 signature grade fruits at the end of '23 (6 more), and its own brand GMV increased by 3ppt to 14%. It continues to lay out upstream through agricultural technology, capital empowerment, etc., and is optimistic that its industrial chain capacity will continue to improve. 2) In terms of the 2B business group, the company's direct sales revenue increased 42.5% to 1.03 billion yuan in '23, with overseas sales focusing on high-quality routes, and sales increased 62% in '23; in addition, the company completed the acquisition of Bangguo, and the annual GMV reached 3.07 billion yuan. We believe it is expected that supply chain efficiency and 2B sector share will be further improved in the future.
Profit forecasting and valuation
Considering the high cost pressure during the company's strategic adjustment process, we lowered our 2024/25 profit forecast by 25%/25% to 30/370 million yuan. The current stock price corresponds to 15/12 times P/E for 2024/25. Considering that the company's stock price has already recovered quite deeply in the early stages, the strategic upgrade is expected to drive brand positioning optimization, market share increase, and subsequent business improvement, maintain an outperforming industry rating. Based on profit forecast adjustments, the target price will be lowered by 31% to HK$4.5, corresponding to 21/16 times P/E in 2024/25, with 37% room for growth.
risks
Category expansion and channel expansion fell short of expectations; food quality and safety risks; fruit price fluctuation risks; franchise store management risks.