Incident: The company released its 2023 annual report & 2024 quarterly report. The company achieved revenue of 3,582 million yuan, +42.87% year over year, net profit to mother of 281 million yuan, +32.39% year over year, after deducting non-net profit of 281 million yuan, +43.01% year on year; of these, 23Q4 achieved revenue of 1,079 million yuan, +50.08% year over year, net profit of 96 million yuan, and +165.50% year over year. 2024Q1 achieved revenue of 952 million yuan, +35.51% year over year, net profit attributable to mother of 63 million yuan, +114.39% year over year, after deducting non-net profit +155.07%
With high growth in the full year of 2023, 2024Q1 America resumed high elastic growth. In 2023, the company was also listed as a US BF subsidiary. At the same time, revenue performance in China, Europe and the Asia-Pacific region was outstanding. Endogenous revenue increased 15.6% year over year, contributing to a high annual revenue increase. By product, in 2023, the company's revenue from softgels, gummies, drinks, tablets, powders, hard capsules and other products was 15.3/7.4/4.2/3.6/290 million yuan respectively, up 54%/25%/6%/53%/300% year-on-year. Since the BF subsidiary mainly produces softgel products, it has contributed greatly to the company's softgel revenue growth. By region, China, America, Europe, and others achieved revenue of 18.5/10.4/5.3/160 million yuan respectively for the whole year, up 24%/93%/34%/99% year on year. Among them, the American region includes BF combined table revenue of 685 million yuan, and income from endogenous America is expected to decline year on year. The company's 2024Q1 revenue growth was in line with expectations, and the return to high revenue growth in the Americas and BF contributed the main increase. Q1 expects overall endogenous growth of 30%, and revenue is expected to remain flat year over year due to the high base and customer order pace in China. With the end of inventory removal from American customers, American endogenous revenue and BF subsidiary orders resumed high elastic growth. Among them, American endogenous revenue is expected to double. Ongoing orders in Europe are growing steadily. Considering the high base growth in Q1 last year, Q1 revenue is expected to be slower than overall growth this year.
The endogenous net profit margin reached a record high in 2023, and the 2024Q1 endogenous profit level increased beyond expectations.
The company's gross margin fell 0.91 pct year on year to 30.27% in 2023. Among them, endogenous gross margin increased by 5.4 pcts and management expenses decreased by 2.35 pct. The overall net interest rate decreased by 0.62 pct to 7.85% year on year, mainly due to the US BF subsidiary, which lost 140 million yuan in net profit and 100 million yuan in net profit loss to mother in 2023. Excluding the impact of BF losses, the company's endogenous net interest rate is expected to reach 13% +, a record high, mainly due to factors such as cost reduction and efficiency, product structure and price increases. 2024Q1's gross margin increased by 2.95 pct to 30.62% year on year, sales, R&D and financial expenses ratio did not change much, and the management expense ratio continued the trend of cost reduction and efficiency, falling 2.16 pct to 9.67% year on year. The overall net interest rate of 2024Q1 increased by 2.99 pct to 5.66% year on year. Among them, the endogenous net interest rate is expected to increase by about 2 pct to about 12%, BF is expected to lose about 30 million yuan, and a week of discontinuation of production due to the Q1 inventory count will affect capacity utilization. If this factor is excluded, BF is expected to reduce losses slightly from month to month.
Rapid growth is expected to continue in 2024, and equity incentive targets are expected to be successfully achieved. Looking ahead to the whole year, the company's equity incentive target this year is no less than 4.3 billion yuan in revenue, +20% year over year, and net profit target of 400 million yuan to mother, +42% year over year. At present, the results of the company's domestic and European internal adjustments are gradually showing. For domestic customers, the company will insist on deepening and penetrating high-value customer strategies, and also set up industry BD to explore cross-border customers. Currently, it has launched 14 pharmaceutical factories and 7 dairy enterprise projects, and has reached cooperation with retailers such as the national chain Jianzhijia, Hema, and Watsons. The European region, on the other hand, adheres to the big customer strategy and gains growth through emerging markets such as Southern Europe, Eastern Europe, and the Middle East. The impact of inventory removal in the American region subsided this year. The BF subsidiary's personal care and soft candy production lines have all been successfully put into operation. Currently, orders for the new business are progressing as scheduled. BF has formed a strong synergy with the US endogenous business. The expected revenue performance in the US region is impressive, and BF is expected to gradually achieve profit by the second half of 2024.
Profit forecast: We expect the company's revenue for 2024-2026 to be 43.5/49.8/5.66 billion yuan, respectively, +21%/14%, and realized net profit to mother of 4.1/50/ 60 billion yuan, respectively, +46%/22%/18%, PE 16/13/11X, respectively. We will give 20 times PE based on our 2024 results, with a target price of 45.05 yuan for one year, maintaining a “buy” rating.
Risk warning: Food safety risks; increased industry competition; risk of rising raw material costs; BF profits falling short of expectations; increased exchange rate changes; delivery of orders from major customers falls short of expectations.