2023 results are in line with market expectations
The company announced its 2023 results. Revenue reached 2.04 billion yuan, an increase of 8% over the same period, and net profit to mother reached 76.767 million yuan, a decrease of 40.3%. By quarter, 1Q/2Q/3Q/4Q revenue was +0.7%/+31.3%/-18.7%/34.6%, respectively, and net profit to mother was -29.3%/-40.4%/-54.2%/-27.1%, respectively. The results were in line with market expectations. The company announced that if 1H24's net profit to mother is not lower than the same period last year and the monetary fund balance is not less than 10% of net assets, it will pay an interim cash dividend to enhance investor returns.
Development trends
1. The resumption of overseas orders for pet products and the promotion of domestic agency cooperation for pet food are expected to drive continued revenue growth. By business, 1) Pet products: Revenue in 23 years reached 1.33 billion yuan, down 1.5%. Among them, revenue for pet litter mats/cat crawlers/pet toys fell 6.3%/1.6%/3.7% respectively, mainly due to inventory removal from overseas channels affecting the company's ongoing orders. We believe that the current inventory of the company's core customers has fallen back to a reasonable level. As the pace of terminal marketing and procurement recovers, overseas orders for pet products are expected to return to steady growth; 2) Pet food: achieved revenue of 690 million yuan, an increase of 34.6% over the same period. The company continued to strengthen and consolidate overseas brand cooperation Online and offline sales channels drive rapid revenue growth in the food business.
2. Revenue restructuring, overseas production capacity construction, and reduced exchange earnings weighed on 23-year results, and is expected to improve in the future. On the gross profit side, the company's gross margin reached 17.8% in 23, down 2.3 ppt. Among them, the gross margin for pet products/food products was +0.68pp/ -5.96ppt to 22.4%/8.8%, respectively. With the pace of overseas production and the recovery of shipping trade, the recovery in pet food supply led to a return to normal levels. On the expense side, the company's 23-year sales/management/finance expense ratios increased by 0.1 ppt/0.2ppt/1.5ppt respectively. The increase in financial expense ratios was mainly due to a decrease in exchange earnings and an increase in interest expenses. Furthermore, in '23, the company invested in factories in Tianyuan, Vietnam, and Ohana, Poland to cover some orders for iron products and cat crawlers. Early factory construction led to certain losses. Under the combined influence, the company's net interest rate to mother in '23 reached 3.8%, down 3ppt.
3. Optimistic about the company's growth prospects as a one-stop supplier of pet products. In 24 years, product foundries and food agents are expected to grow in two rounds. We believe that 1) Pet products: The company relies on supply chain advantages to create a rich product matrix to efficiently meet the one-stop procurement needs of overseas customers. With the recovery of overseas terminal sales and inventory decline, the company's on-hand orders are expected to return to steady growth in 24 years, and new categories such as new cross-border e-commerce channels and smart products are also expected to contribute to growth momentum; 2) Pet food: China's high-end pet food market is in strong demand, and the company has become a domestic distributor for leading companies such as Champion, Mars, and Nestle. We expect that in 24 years, pet food revenue and profits will increase rapidly. The rate is expected to be achieved optimization.
Profit forecasting and valuation
Considering the rapid growth trend of the pet food business, the net profit forecast for 2024 was raised by 10% to 130 million yuan. For the first time, a net profit forecast of 150 million yuan for 2025 was introduced. The current stock price corresponds to 17/15 times P/E for 2024/25. Keep the outperforming industry rating and target price of 27.5 yuan unchanged, corresponding to 27/23 times P/E in 2024/25, with 55% room for growth.
risks
Risk of changes in overseas market demand, risk of exchange rate fluctuations, risk of loss of core customers, risk of additional tariffs, risk of outsourcing production model operation.