Matters:
The company released its 2023 annual report. The full year of 2023 achieved revenue of 2,714 billion yuan, +12.62% year-on-year, net profit to mother of 142 million yuan, -27.71% year-on-year, and net profit after deducting non-return to mother of 140 million yuan, or -21.53% year-on-year. Single Q4 revenue was 631 million yuan, +13.04% year over year, net profit to mother - 473,400 yuan. In the same period last year, it was 42.6066 million yuan, net profit not attributable to mother - 4,012,600 yuan, compared to 39.951 million yuan in the same period last year.
Commentary:
Merchandising combined with new agricultural products, and achieved high growth in Q4 to support steady revenue performance. By region, domestic revenue in '23 was 1,451 billion yuan, +6.03% year-on-year, and overseas revenue was 1,249 billion yuan, +20.84%; in 23Q4, domestic revenue was 319 million yuan, +1.65% year-on-year, and overseas revenue was +307 million yuan, or 28.57% year-on-year. It is expected that the high increase in overseas sales will mainly benefit from the smooth progress of investment promotion (Q4), compounding the impact of the new agricultural merger. By category, room temperature/low temperature/animal husbandry/others achieved revenue of 15.3/10.8/0.09 billion yuan in 2023, 18.65%/7.57%/-10.08%/-50.61%; 23Q4 achieved revenue of 3.6/2.52/0.11/0.03 billion yuan respectively, 13.01%/18.61%/-41.61%/16.87%. Both normal and low temperature categories maintained steady growth.
Rates rose across the board and assets depreciated sharply, and Q4 profits were clearly under pressure. The gross margin for 23 years was 19.11%, +1.23pcts, the sales/management/R&D/finance expense ratio was 5.41%/3.57%/0.91%/0.67%, +0.23pcts/+0.22pcts/+0.48pcts/+0.89pcts, and the net profit margin was 5.16%, -3.17pcts yoy. 23Q4 gross profit margin was 17.58%, -0.07pcts year on year. Despite the decline in raw milk prices, it is still expected to be affected by increased industry competition and the commissioning of the Shandong factory. The sales/management/R&D/finance expenses ratio is 5.21%/4.73%/1.26%/0.67%, +1.38pcts/+0.38pcts/+1.22pcts. The overall increase in rates is expected mainly due to increased market investment and an increase in series costs due to the acquisition of Xinnong. In addition, 23Q4 other earnings accounted for 7.9% of revenue, +5.36 pcts year on year, and asset impairment losses (mainly biological asset impairment) accounted for 7.81% of revenue, +5.43 pcts year over year, which also disrupted profits. Therefore, the net interest rate was -0.88%, a sharp decrease of 8.52 pcts year on year.
The acquisition of Xinnong in '23 greatly dragged down its performance. At the bottom of the cycle, the company continued to strengthen the layout of the entire industry chain, and channel expansion progressed steadily. Since 23Q2, the company's performance has continued to be under pressure, mainly due to Xinnong's loss of 56.9 million yuan, second, amortization expenses for the premium acquisition of Xinnong of 27.37 million yuan. Third, interest expenses increased by 1.08 million yuan due to an increase of 651 million yuan in capital raised due to the acquisition, so Xinnong's total profit was 95.35 million yuan. After the restoration, the company's endogenous profit increased by about 20%. However, on the one hand, milk resources in Jiang were indeed scarce. After the merger, Xinnong achieved a marked increase in the company's milk source layout. In '23, the company had 26 ranches, +8 over the same period, the number of cows kept was 65,000 heads, +47.7% compared to the same period. The milk self-sufficiency rate reached 92.36%, and the overall industry chain layout was improving day by day; on the other hand, the number of domestic dealers increased by 33, and the number of specialty stores in China reached 1,000, and the number of specialty stores increased steadily over the previous year. Advancing step by step, the upstream and downstream operating base continues to grow Actually.
Profits are expected to remain under pressure, and we will keep an eye on the inflection point of milk prices during the year. Although the impact of the premium amortization and interest expenses of the acquisition of Xinnong is expected to continue this year; more importantly, the company's current milk self-sufficiency rate has reached more than 90%. The price of raw milk has dropped sharply and feed costs are still relatively high, which will put a lot of pressure on the company's gross margin and biological asset impairment losses. Looking at the end of the year, in line with the expansion of the upstream animal husbandry industry, we expect milk prices to continue to decline in the next 1-2 quarters. If the gap between supply and demand subsides at the end of Q3, milk prices are expected to stabilize or even rise. It is recommended to keep an eye on the inflection point of milk prices and look forward to the company's profit recovery.
Investment advice: Operating pressure remains, keep an eye on the inflection point of milk prices. Considering that demand will continue to gradually recover during the year, and the impact associated with the acquisition of new farmers will continue, we lowered the 24-26 EPS forecast to 0.52/0.62/0.73 yuan (the 24-25 forecast was 0.71/0.87 yuan), and the current price corresponds to 19/16/13 times the PE valuation. The company's overseas expansion logic has not changed, and the barriers to domestic milk sources continue to be consolidated. It is recommended to keep an eye on profit improvements after the inflection point of raw milk prices. We lowered the target price to 11 yuan accordingly, corresponding to about 21 times PE in 24 years, and maintained the “recommended” rating.
Risk warning: Overseas expansion falls short of expectations, increased industry competition, sharp decline in raw milk prices, etc.