Incident: The company released its 2023 annual report. Total revenue was 2,714 billion yuan, up 12.6% year on year; net profit to mother was 142 million yuan, down 27.7% year on year. Looking at the fourth quarter of a single quarter, 2023Q4 revenue was 631 million yuan, an increase of 13% over the previous year; net profit loss to mother was 470,000 yuan, which changed from profit to loss.
On June 1, 2023, the company merged Xinnong Dairy. Excluding the impact of the merger of Xinnong, the company's revenue in 2023 was 2.509 billion yuan, up 4.1% year on year; after excluding the impact of Xinnong, the company's net profit to mother was 237 million yuan, an increase of 20.8% year on year.
Online and offline go hand in hand, and the two sides of the country and abroad fly in unison. The company's exit process continues to advance. In 2023, the company's domestic and overseas revenue was 1,451/1,249 billion yuan respectively, up 6.0%/20.8% year on year; gross profit margin was 17.9%/20.9%, up 3.0/-1.1 pcts year on year. Furthermore, the company's digital marketing has achieved rapid development from 0 to 1, deeply integrating promotion and sales. During the reporting period, distribution/direct sales revenue was 2,401/299 million yuan respectively, up 12.2%/13.9% year on year; gross profit margin was 19.7%/16.1%, up 1.4/1.1 pcts year on year. Among them, the increase in direct sales channel revenue is mainly due to the company's expansion of digital marketing methods such as short videos, live streaming, and private domain operations on the basis of operating traditional e-commerce platforms such as JD, Tmall, and community group buying.
The product matrix is continuously optimized, and R&D innovation enhances core competitiveness. During the reporting period, the company continued to cultivate product innovation, and R&D investment increased by 141.9% year on year. Adhering to the market-oriented concept, it launched more than 70 new products with various flavors, such as zero sucrose yogurt, sea buckthorn milk beer, and apricot spinach yogurt.
Benefiting from the consolidation of the company's competitive advantage in the country and the further opening of export channels, the revenue and gross profit of room temperature dairy products and low temperature dairy products have both increased. Among them, the revenue of room temperature dairy products/low temperature dairy products/animal husbandry products was 15.30/10.80/80 billion yuan respectively, up 18.7%/7.6%/-10.1% year on year, and gross margin was 18.8%/21.5%/-3.4%, respectively, up 2.7/0.6/-14.3 pcts year on year.
Weak demand and mergers reduce profit margins for new farmers, which may be improved in the future. Affected by weak consumption, a slowdown in the growth rate of the dairy industry, and the fact that new ranches are still being built upstream, the relationship between supply and demand is unbalanced, and there is a phased excess of raw milk. At the same time, the company's acquisition of Xinnong Dairy during the reporting period led to a reduction of 95 million yuan in the company's profit, a loss of 70 million yuan in the elimination of cattle, and an increase in the overall cost level of the company's overseas strategy and R&D innovation, all of which affected the company's profit level. On the cost side, the company's sales expense ratio and management expense ratio in 2023 were 5.4%/3.6% respectively, an increase of 0.2/0.2 pcts over the previous year. The increase in sales expenses ratio was mainly due to product promotion, while the increase in management expenses ratio was mainly due to strategic planning. However, gross margin increased by 1.2pcts year over year to 19.1%. Profit space may be freed up in the future.
Profit forecasting and investment advice. Considering the weak recovery on the demand side and the short-term impact of the merger, we expect the company's revenue for 2024-2026 to be 29.98/3374/37.67 billion yuan (2024/pre-2025 values were 32.09/3.688 billion yuan, respectively) and net profit to mother of 1.79/2.03/242 million yuan (2024/2025 prior values were 221/261 million yuan, respectively). However, Tianrun's strategy for going abroad in this round is clear, and overseas market expansion is still progressing steadily, and it is expected that there will still be room for growth in future development. Therefore, we gave the company 22X PE in 2024, with a corresponding target price of 12.30 yuan/share, maintaining the purchase rating.
Risk warning: Industry promotion competition intensifies; the company's overseas expansion progress is blocked; raw milk prices fluctuate greatly; terminal demand falls short of expectations; food safety incidents.