Event: The company released its report for the first quarter of 2024. Q1 achieved revenue of 3.482 billion yuan, +39.80% year over year, and net profit to mother of 664 million yuan, +33.51% year over year.
Comment:
The base market continues to be deeply cultivated, and the whole country is accelerating. 2024Q1 achieved main business revenue of 3.478 billion yuan, +39.7% year-on-year, mainly due to rapid growth in the national market. Specifically, in 2024Q1, the company continued to cultivate its dominant market. The Guangdong region's revenue was +9.4% to 921 million yuan, accounting for -7.3 pct to 26.5% year over year; the Guangxi region's growth rate slowed, with revenue of +1.6% year over year to 286 million yuan. The national market accelerated, with revenue in central China +54.5% YoY to $532 million; East China revenue +48.1% YoY to 501 million yuan; Southwest China +69.1% YoY to 389 million yuan; North China revenue +95.4% YoY to 435 million yuan.
The category expansion is showing initial results, and we look forward to new product performance during the peak season. Looking at the product structure, benefiting from the rapid development of the national market, Dongpeng's revenue was +30.1% to 3.1 billion yuan; driven by new products such as Dongpeng Water Replenishment, the revenue of other beverages was +257% to 377 million yuan, accounting for +6.6pct to 10.8% of the year-on-year revenue. The market is concerned about the development of the company's second growth curve. In 2023, the company will launch a new sugar-free tea product “Oolong Tea” on the basis of “Dongpeng Replenish Water”. We believe that with the addition of various flavor options such as Pu'er Tea and Jasmine Tea in 2024, the company's new sugar-free tea products are expected to contribute a good revenue increase in the current consumption boom of sugar-free tea. As of 2024Q1, the company has 2,912 dealers, achieving 100% prefecture-level market coverage, so new products are expected to achieve good growth through existing channel coverage and continue to build the company's “Energy +” category matrix.
Refrigerators were added before the peak season, and the sales expense ratio increased slightly. 2024Q1's operating costs were +41.7% YoY, and gross margin -0.8pct to 42.8% YoY. In terms of the cost ratio, the company increased freezer sales before the peak season. Sales expenses were +52.53% to 596 million yuan, and the sales expenses ratio was +1.4pct to 17.1% year over year. Despite the increase in the company's managers' compensation expenses and investment in information technology, it benefited from rapid growth in sales revenue, and the management expense ratio was -0.3 pct to 2.9% year over year due to the scale effect. In summary, 2024Q1's net profit to mother was +33.51% year-on-year to 664 million yuan, and net profit margin to mother -0.9pct year-on-year to 19.1%.
Investment advice: The company continues to cultivate in Guangdong Province, and continuously optimizes the distribution system and improves the business team outside the province. We believe that the company's energy drinks are expected to maintain good growth in the national market. Looking ahead to 2024, we believe that the launch of sugar-free tea products is expected to be a new revenue increase based on “Dongpeng Hydration La”'s own price advantage and channel advantage. We expect the company's 2024-2026 EPS to be 6.27, 7.54, and 9.00 yuan, respectively. Corresponding to the closing price on April 22, 2024 (195.6 yuan/share), PE will be 31, 26, and 22 times, maintaining a “buy” rating.
Risk factors: fluctuating raw material prices, growth of new products falling short of expectations, nationalization falling short of expectations