Matters:
The company released its report for the first quarter of 2024. In Q1 '24, we achieved revenue of 3.482 billion yuan, +39.80% year over year; net profit to mother of 664 million yuan, +33.51% year over year; net profit after deducting non-return to mother of 624 million yuan, +37.76% year over year.
Commentary:
24Q1 revenue was strong and exceeded expectations, and reports are still gathering strength. Benefiting from a sharp increase in the number of outlets, combined with the effective implementation of the project to return to their hometown during the Spring Festival, the company's successful start exceeded expectations. At the same time, 24Q1 repayments of $4,096 billion, in line with revenue performance, net operating cash flow was 860 million yuan, +18.72% year-on-year, slower than repayments, mainly due to increased expenses related to purchasing goods, receiving labor, and other operating activities. Contract debts/other payables at the end of the reporting period were $2,688/896 million, +0.80/+79 million over the previous month, and the statements are still gathering strength.
Outside the province, growth continues to rise, with new products accounting for more than 10%. By region, 24Q1 Guangdong/other regions/direct operating headquarters of the country achieved revenue of 921/21.43/413 million, +9.4%/+51.2%/+79.9%, accounting for 26.5%/61.6%/11.9%. Among them, East China/ Central China/ Guangxi/ Southwest/ North China achieved revenue of 5.01/5.32/6/2.89/435 million respectively, +48.1%/+54.5%/+1.6%/+69.1%/+95.4%. North China and Southwest China were strong Growth is leading the country. East China and central China continue to grow at a high rate, and Guangdong's growth rate is relatively steady. The slow growth rate in Guangxi is mainly due to the relatively mature market and the new product Q1 has not had a strong impact. By product, Dongpeng Special Drinks/Other Beverages achieved revenue of 31.01/377 million in 24Q1, +30.1%/+257% year-on-year, accounting for 89.2%/10.8%. Other beverages accounted for +6.6pcts year-on-year. It is expected that hydration will be the main growth force for other beverages.
The increase in the proportion of new products and the increase in freezer sales have slightly dragged down short-term profits. The gross margin of the 24 Q1 company was 42.77%, -0.76pcts year on year. The forecast is mainly due to factors such as an increase in the share of new products, but the gross margin is low because it is still in the cultivation period, compounded by factors such as the still high price of white sugar. The 24Q1 sales expense ratio was 17.11%, +1.43pcts compared to the previous year. The main reason is that the company increased freezer sales this year to enhance brand power and increase single-point output. The 24Q1 management/R&D/finance rate was 2.95%/0.32%/-1.29%, compared with -0.3 pcts/-0.1 pcts/-1.06 pcts compared to -0.3 pcts/-0.1 pcts/-1.06 pcts, which is affected by the scale effect of the overall dilution rate and the increase in interest on time deposits. Furthermore, the company's total investment income and fair value net income accounted for 1.0% of revenue, -1.0pcts year over year, which partially dragged down short-term profits. As a result, the 24Q1 net profit margin was 19.07%, -0.9pct year-on-year.
In terms of pace during the year, we will fully face the peak season starting in the second quarter, and we are looking forward to new product sales performance. We believe that the company is backed by operating capacity and diversified matrices, and has sufficient momentum throughout the year. In terms of pace, sales during the 24Q1 season had a good start, and sales exceeded expectations, and new products have yet to gain a clear momentum due to factors such as tight supply chains and energy allocation among sales staff. Since the second quarter, the company's business focus has completely shifted to peak season sales:
Production capacity side: The pressure on centralized orders during the Spring Festival was relieved. In addition, the Changsha factory was officially put into operation at the end of March, other factories added new production lines, supply chain pressure was significantly reduced, and the company is building a production base in Tianjin, and this announcement plans to build a production base in Zhongshan to further guarantee the medium- to long-term production capacity base;
Product side: The company's new series of products have been gradually launched. Early hydration has launched flavors such as grapefruit/lychee/white peach/0 sugar, big names have launched coconut lattes, and unsweetened tea have added Pu'er and jasmine flavors to enter the channel. At the same time, new coconut juice and cocktail products expand new channels for new audiences, and the product matrix has been quickly completed;
Channel side: Currently, the business focus is on network development and freezer delivery. Driven by the provision of relevant subsidies in advance, outlet development is progressing faster than in previous years, and freezer delivery efforts have increased markedly; the second is multi-category management, that is, in the context of increased taste and objective management difficulty, the sales team pays more attention to inventory management and production and marketing coordination, while focusing on multi-phase shelf display, fine maintenance, and project implementation.
Furthermore, the company's digital system protects terminal sales and consumers in a timely manner, and provides accurate decision support for adjusting market strategies in a timely manner, so it is worth looking forward to sales during the peak season in the second and third quarters.
Investment advice: Strong growth lives up to expectations, looking forward to peak season sales catalyzing, and maintaining a “strong” rating. Kaimenhong's growth was strong and exceeded expectations, and business actions such as the gradual easing of production capacity pressure, the orderly launch of a series of new products, and increased freezer sales were implemented efficiently, and the growth rate was sufficient throughout the year. Maintain the 24-26 performance forecast of 27.0/34.1/418 billion yuan, corresponding to PE valuation 29/23/18 times. As the peak season approaches, sales performance is expected to catalyze an upward trend, maintaining a target price of 240 yuan, corresponding to a 24-year PE of about 35X, maintaining a “strong push” rating.
Risk warning: Network expansion falls short of expectations, promotion of new products falls short of expectations, sharp rise in raw material prices, etc.