Incident: Weilong released its 2023 annual report, achieving annual revenue of 4.87 billion yuan, +5.2% year over year; net profit to mother of 800 million yuan, +481.9% year over year. Among them, 23H2 achieved operating income of 2.54 billion yuan, +7.3% year on year; net profit to mother was 430 million yuan, +5.1% year over year.
Sales of seasoned noodle products are under pressure, and vegetable products are growing rapidly. In 2023, seasoned noodles/vegetables/soy products and others achieved revenue of 25.5/2.2/20 billion, respectively, or -6.2%/+25.1%/-7.5% year-on-year. In terms of volume and price breakdown, the sales volume of seasoned noodles/vegetable products/soy products and others was 124/7.1/0.5 million tons, respectively, -17.4%/+31.1%/-12.7%; the tonnage price was 2.1/3.0/38,000 yuan, respectively, +13.3%/-4.8%/+6.1%. The average price of flavored noodle products increased by adjusting the product structure, but due to the elimination of some low-priced products, sales declined significantly, putting pressure on revenue performance. As the company iteratively upgraded packaging and expanded production capacity to guarantee product supply, the sales volume of vegetable products grew rapidly, and the share of revenue continued to rise. Sales of soy products and others are under pressure as the company optimizes the allocation of marketing resources and reduces marketing activities.
Structural optimization and cost reduction drive an increase in gross profit, and the dividend ratio has increased significantly. 1. The company's gross margin in 2023 was 47.7%, +5.4pp year on year, mainly due to lower raw material costs, increased share of vegetable products with high gross margin, and cost management optimization. 2. In terms of cost ratio, the sales expense ratio was 16.6%, compared to +2.9pp, mainly due to the increase in advertisements placed by the company in outdoor media and e-commerce platforms to strengthen brand promotion, and the increase in welfare expenses for hiring additional sales staff. The management fee rate was 9.4%, -1.0pp year over year. 3. The adjusted net interest rate was 19.9%, +0.2pp year on year, and profitability continued to increase. 4. In 2023, the company drastically increased its dividend ratio. The basic dividend ratio was raised from 30% to 60%, and the special dividend dividend ratio was maintained at 30%.
Actively embrace new channels such as mass sales of snacks, and accelerate the search for new growth. Since Q2, the company has fully cooperated with snack mass sales channels through customized packaging and specifications. The company responds positively to channel demand to provide customized products, and controls the impact of changes in channel structure on gross profit through customized value chains. Currently, snack sales account for nearly 10%. The company launched Overbearing Panda (Sichuan-style spicy strips) in September 23, launched Little Witch (Sichuan-style flaky konjac) in October, and developed a new product called Crispy Flakes (Sichuan-style potato chips) in 24, and the pace of promotion accelerated markedly. In 2024, it is expected that the share of revenue from snack sales channels will rise from single digits to double digits, and the revenue contribution of the three major new products will rise to high units to double digits. The channel and new product performance is worth looking forward to.
Profit forecast and rating: The estimated net profit for 2024-2026 is 1.05 billion yuan, 1.22 billion yuan, and 14.1 yuan, respectively, and EPS is 0.45 yuan, 0.52 yuan, and 0.60 yuan, respectively. The company was given a valuation of 14 times in 2024, corresponding to a target price of HK$6.85 according to the 0.92:1 exchange rate. It was covered for the first time, and a “buy” rating was given.
Risk warning: Risks such as increased industry competition, fluctuating raw material prices, and food safety issues.