Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 1.41 billion yuan, a year-on-year increase of 0.6%, achieved net profit of 240 million yuan, a year-on-year increase of 7.2%, and realized net profit without deduction of 220 million yuan, an increase of 16.7% over the previous year. It is estimated that 23Q4 achieved revenue of 343 million yuan, a year-on-year increase of 0.22%, achieved net profit of 48 million yuan, a year-on-year decrease of 27.3%, and realized net profit without deducted income of 41 million yuan, a year-on-year decrease of 26.6%. Profit performance was in line with market expectations. The dividend plan is to pay 5 yuan for every 10 shares, accounting for 80.32% of net profit attributable to mother.
Investment rating and valuation: Taking into account weak recovery in demand and amortization of employee shareholding plan expenses, the 2024-25 profit forecast was lowered, and 2026 was added. Net profit due to mother for 2024-26 was 2.8 billion, 3.3 million, and 380 million, respectively (357 million and 421 million in the previous 24-25 years) increased 16%, 19.5%, and 16.3% year-on-year respectively. The latest closing price corresponding to 2024-26 PE was 19x, 16x, and 14x, respectively, maintaining an increase rating.
Revenue performance was under pressure in '23, and nationalization continued to expand in '24. According to the 23 annual report, by category, the company achieved revenue of 1.38 billion yuan for dairy beverages in 2023; by region, the company's core revenue in East China/Central China/Southwest China changed -3.6%/+5.1%/+3.5% year over year, respectively. The company's annual performance is expected to be pressured mainly by 1) the East China market at the base was dragged down by population exodus, 2) due to the impact of snack sales channels. In 2023, the company added 35 to 2,585 distributors. Looking ahead to 2024, the company will increase its investment promotion efforts and accelerate the nationwide strategic layout. Among them, it will continue to focus on expanding catering and breakfast channels in the core key markets; in the foreign port market, promote new customer investment and quickly establish a channel network to cultivate new markets.
23Q4 profitability is under pressure. According to the 23 annual report, the company achieved a gross profit margin of 35.85% in 2023, up 3.4 pcts year on year, mainly due to 23H1 benefiting from price increases and overall cost pressure relief for the whole year; however, 23Q4 gross margin was 34.2%, down 1.3%/1.5% year over month, which is expected to be mainly due to increased promotional trade-off and low capacity utilization. The sales, management, R&D, and financial expense ratios in 2023 were 11.9%, 4.7%, 1.4%, and -1.7%, respectively, with year-on-year changes of -0.5 pct, +0.5 pct, and +0.3 pct, respectively, unchanged. On a quarterly basis, 23Q4's sales expenses rate was 14.9%, an increase of 4.2 pct over the previous year, mainly due to the company's brand upgrade and increased air and ground investment. In 2023, the share of the company's other revenue as a share of revenue fell by 1pct to 3.1% year on year, mainly due to a year-on-year decrease of about 24% in government subsidies in '23. In summary, the 2023/23Q4 net interest rate of the company withheld from mother was 15.5%/11.9%, with year-on-year changes of +2.1pct/-4.3pct, respectively.
The catalyst for stock price performance: foreign market performance exceeded expectations, new product release, product price increases
Core hypothetical risks: Nationalization falls short of expectations, rising raw material prices, food safety risks