[Table_Summary] Event Overview
The company announced its 23-year results announcement. 23FY achieved operating income of 42.67 billion yuan, +28.4% year over year; net profit of 12.08 billion yuan, +42.2% year over year; 23H2 achieved operating income of 22.20 billion yuan, +33.4% year over year; and net profit of 6.30 billion yuan, +62.2% year over year, exceeding market expectations.
Analytical judgment
Packaged drinking water has grown steadily, and tea drinks have surpassed expectations
The 23FY/23H2 packaged drinking water business achieved revenue of 104.4/9.82 billion yuan respectively, +11.7%/+10.2% year-on-year; the 23FY/23H2 tea beverage business achieved revenue of 52.9/7.37 billion yuan, +59.8%/+104.9%, respectively; the 23FY/23H2 energy drink business achieved revenue of 24.6/2.45 billion yuan, respectively, +21.5%/+34.7% year-on-year; 23FY/23H2 juice beverage business achieved revenue of 16.9 billion yuan respectively /1.85 billion yuan, +32.2%/+15.1%, respectively. We believe that the company has maintained steady double-digit growth in the packaged drinking water business by adhering to the brand concept of “what kind of water sources nurture what kind of life”, combined with the continuous improvement of sales outlets.
The beverage business accounted for more than 52.5% of the revenue of packaged drinking water in '23. We believe this is due to 1) further increase in network coverage; 2) increased acceptance of the sugar-free tea category, the benefits of “Oriental Leaf” +23 years of new flavor black oolong further improving the product line layout+launching a new 900m free drink package to meet the drinking needs of consumers in more scenarios; 3) the continuation of tea pi among young consumers. Both energy drinks and juice drinks have achieved 20+% growth. We think this is due to 1) increased consumer acceptance of the screaming electrolyte water concept; 2) the launch of new flavors of vitamin water and promotion of vitamin functionality have raised consumer awareness; 3) the NFC concept in juice drinks meets consumers' demand for freshness and health, leading the category growth.
Low costs and gross margins continue to rise
23FY/23H2 gross margins were 59.5%/59.0%, respectively, compared to +2.1/3.3 pct. The company's high-margin products accounted for 75+% of packaged water+tea drinks, and the product structure was rising steadily. Therefore, we judge that the increase in gross margin was mainly due to cost fluctuations. PET prices remained low for 23 years (according to Longzhong Consulting, the average market price of polyester bottles in East China was the lowest in the year -3.0% compared to the end of '22), which led to an increase in gross margin. 23FY/23H2 sales expense rates were 21.8%/20.7%, respectively, compared to -1.8/-4.6pct, respectively. We believe this is mainly due to changes in the category structure brought about by the increase in the share of beverages, as well as the reduction in logistics and warehousing costs under the long-term layout of national production lines and logistics networks. The 23FY/23H2 management expense ratios were 5.1%/5.4%, respectively, -0.5/-0.3 pct year-on-year, respectively. Our judgment is mainly due to the scale effect brought about by continued revenue growth. Gross margin increased + expense ratio decreased. 23FY/23H2 net margin was 28.3%/28.4%, respectively, +2.8/+5.0 pct year-on-year, respectively.
Steady double-digit growth in expected revenue performance in '24
According to the company's performance announcement, it is proposed to pay a dividend of 0.75 yuan/share in '23, totaling about 8.44 billion yuan, with a dividend distribution rate of about 69.8%. The company has maintained a relatively high dividend distribution ratio since its listing, and we expect it to be maintained for 24 years.
From a 24-year revenue perspective, we expect that packaged drinking water will still be able to achieve double-digit growth, and the tea and beverage business still gives high growth expectations, and energy drinks and juice drinks give medium to double-digit growth expectations. Taken together, we expect high double-digit revenue growth; from a performance perspective, PET prices showed an upward trend in early '24, and we expect a slight impact on gross profit margin. The cost ratio is expected to remain flat. Taken together, we are giving double-digit growth in performance, and the growth rate is slightly lower than expected revenue.
Investment advice
According to the adjusted profit forecast according to the company's performance announcement, total revenue for 24 was raised from 46.03 billion yuan to 50.1 billion yuan, adding 580.1/66.95 billion yuan in 25-26; net profit to mother was raised from 11.30 billion yuan to 13.60 billion yuan, adding a net profit of 153.4 billion yuan to 17.36 billion yuan for 25-26; EPS was raised from 1.00 yuan to 1.21 yuan, adding 1.36/1.54 yuan for 25-26. The closing price of RMB 39.993 (exchange rate 0.9058) on April 11, 2024 corresponds to PE 33/29/26 times, respectively, maintaining the “gain” rating.
Risk warning
Food safety risks; sharp rise in raw material prices; sales of new products falling short of expectations, etc.