Incident: The company disclosed its 2023 annual results announcement, which achieved revenue of 80.418 billion yuan (YOY 2.16%) and net profit to mother of 3.117 billion yuan (YOY 18.43%). In addition, the company's 23 year cash dividend was 3.117 billion yuan (corresponding dividend payment rate of 99.98%).
Revenue is stable and profitability has recovered. Looking at the 23 profit statement split, on the gross profit side, the company's revenue increased 2.16% year on year, and gross margin increased 1.33 pct year on year to 30.42% year on year, so gross profit increased 6.85% year on year.
On the expense side, the company's expense ratio increased by 1.17 pct year on year (of which the company's sales expenses ratio increased 0.88 pct year on year and management expenses increased 0.21 pct year on year). In addition, other revenue was 893 million yuan, which was basically stable. The combined income tax rate increased 0.56 pct. As a result, the net profit margin to mother increased by 0.53 pct year on year, corresponding net profit to mother rose 18.43% year on year to 3.117 billion yuan.
In terms of beverage business: Steady growth, business scale surpassed the 50 billion mark. The company's beverage business achieved revenue of 50.939 billion yuan (YOY 5.39%) in '23, and the business scale surpassed the 50 billion yuan mark. Benefiting from lower raw material prices and changes in the mix in '23, the gross margin of the beverage business rose 0.15 pct to 32.10% year on year. However, due to the year-on-year increase in the distribution cost ratio, the net profit of the beverage business decreased 8.57% year over year to 1.26 billion yuan.
The company's beverage business has accelerated the establishment of a scale advantage. Tea, juice, water and carbonated categories have all grown, and following the healthy sugar-free trend, it has fully launched products such as sugar-free tea, sugar-free carbonated, and sugar-free coffee. The specific performance by category: (1) the tea beverage business achieved revenue of 20.59 billion yuan (YOY 6.96%) in 23 years; (2) the water business achieved revenue of 5.375 billion yuan (YOY 9.78%) in 23 years; (3) the juice business achieved revenue of 7.150 billion yuan (YOY 4.47%) in 23 years; (4) carbonated beverages and other products achieved revenue of 18.355 billion yuan (YOY 2.88%) in 23 years.
In terms of the instant noodle business: Scale growth is under pressure, and profits are improving relatively well. The company's instant noodle business achieved revenue of 28.793 billion yuan (YOY -2.84%) in '23. Benefiting from lower raw material prices and favorable sales prices, the gross margin of the instant noodle business increased by 3.05 pct to 27.00% year on year, and as a result, net profit to mother increased by 46.10% to 2,08 billion yuan year on year.
In 2023, the instant noodle market faced changes such as a shift in consumption scenarios. The company continued to consolidate core products, develop innovative flavor products, and meet the diverse needs of consumers. Looking at specific categories: (1) container noodles achieved revenue of 13.507 billion yuan (YOY 0.09%); (2) high-priced bag noodles achieved revenue of 11.850 billion yuan (YOY -6.63%); (3) mid-price bag noodles achieved revenue of 2,984 billion yuan (YOY -3.61%); (4) dried crispy noodles and others achieved revenue of 452 million yuan (YOY 28.75%).
Continued expansion of scale advantages for 24 years. In 24 years, the company's instant noodle business continued to provide products with multiple price ranges, multiple specifications, and diverse flavors to meet the diverse needs of consumers and continue to promote the expansion of the industry; the company's beverage business continued to focus on core categories, provide happy and healthy products to serve consumer needs in different scenarios, and accelerate the establishment of scale advantages. Profit forecasting and investment advice. We estimate that in 2024-2026, the company's total revenue will be 857.83/899.07/93.362 billion yuan, the main business revenue will be 853.88/895.12/92.68 billion yuan, and net profit to mother will be 35.01/37.47/4.011 billion yuan respectively (the original 2024-25 total revenue forecast was 911.84/97.682 billion yuan, net profit to mother of 43.56/5.144 billion yuan), corresponding to EPS of 0.62/0.67/0.0.71 yuan per share, respectively. Referring to the PE valuation of comparable companies, and considering that the company has a higher dividend ratio, we gave the company a PE valuation of 19 times in 2024 (originally 19x in 2023), corresponding to a price of 11.78 yuan/share per share, calculated based on the HKD to RMB 0.90 exchange rate, corresponding to a target price of 13.09 HKD/share, maintaining a “superior to market” rating.
Risk warning. (1) Fierce market competition, (2) fluctuating raw material costs, (3) product quality and safety issues, and (4) failure to acquire new users or retain existing customers.