2023&1Q24 slightly lower than our expectations
The company announced 2023&1Q24 results: revenue in 2023 +19% to 5 billion yuan, and net profit to mother +25% year-on-year to 776 million yuan. Among them, 4Q23 revenue was +9.2% YoY to 1.3 billion yuan, net profit +31% YoY to 162 million yuan; 1Q24 revenue was +2.5% YoY to 1.27 billion yuan, and net profit to mother was +33% YoY to 221 million yuan, slightly lower than our expectations. Major bonuses and other expenses were calculated in advance.
2023:1) Revenue grew rapidly, and the product structure continued to improve: the core products, molded bottles/brown bottles, were +29% to 22.6/1.12 billion yuan, of which the annual sales volume of borosilicate molded bottles reached 1.4 billion units (only 800 million in '22), and ampoules/control bottles/rubber stoppers/aluminum caps in other sectors was +24%/+18%/+13%/-3%, respectively, to 0.73/2.0/2.6/0.56 billion yuan. 2) Steady increase in gross margin: 23. The price of soda ash declined, and the comprehensive gross margin in 2023 was +1.2t to 28% year over year, of which the gross margin of molded bottles/brown bottles was -0.6/+3ppt to 39%/24% year over year, driving gross profit +24% year over year. 3) Expense rate increase: annual sales/management/R&D expenses +33%/+30%/-1% year-on-year, driving sales/management/R&D expenses +0.4/-0.5ppt year-on-year (of which 4Q23 sales/management expenses were +1/+2.2ppt). 4) Excellent cash flow: The company's net operating cash flow was +800 million yuan to +1.05 billion yuan year on year, and its revenue ratio was 95% +5.7ppt year over year. 5) Excellent financial situation: At the end of '23, net cash and financial management reached 2.7 billion yuan. The company declared a dividend payment of 0.4 yuan per share, corresponding to a payout rate of 34%.
1Q 24:1) Revenue was dragged down by trade decline: 1Q revenue was only +2.5% YoY. We estimate that borosilicate molded bottles continued to grow at a high rate. Molded bottles+brown bottles combined maintained double-digit growth, but trade revenue declined, and other categories such as regulated/ampoules were basically stable; 2) Rapid recovery in gross margin: 1Q gross margin +6.9ppt to 31% YoY (+3ppt), driving gross profit +34% YoY (+8% month-on-month). 3) Expenses increased due to incentive fund accrual: 1Q sales/management expenses ratio was +0.3/+1.3ppt year-on-year, mainly due to annual incentive expenses accrued in 1Q. 4) Net interest rate level to the highest level:
1Q net margin was +4ppt to 17.4% YoY.
Development trends
Borosilicate's boom is accelerating, and there is still room for upward valuation. We are optimistic that subsequent collection will drive the continuous acceleration of borosilicate molded bottles, a sharp rise in volume and price, and a decline in superimposed raw materials. We estimate that the profit CAGR for 23-25 will reach 26%. Looking at home and abroad, the pharmaceutical packaging industry has steady demand and high valuations (such as SCHOTT Pharmaceuticals, West Pharmaceuticals, etc.), yet the company is booming and profits are growing rapidly, and there is still room for improvement in valuation.
Profit forecasting and valuation
We kept our profit of 1.02 billion yuan unchanged in 2024 and introduced 1.23 billion yuan in 2025. The current stock price is 20x/17x P/E for 2024/25, respectively. We maintain our outperforming industry rating and consider the valuation switch from '23 to '24, raising the target price by 6% to RMB 37.2, corresponding to 2024/25e 24x/20xP/E, implying 20% upside.
risks
Market competition intensified risks, raw material fluctuations exceeded expectations, and borosilicate was released at a lower rate than expected.