Key points of investment
2024Q1 got off to a good start, and the deduction of non-performance exceeded expectations. In 2024Q1, the company achieved revenue of 3.59 billion yuan (yoy +1.7%), net profit to mother of 103 million yuan (yoy +58.9%), and a net interest rate of 2.9% (yoy+1.0pct). Non-recurring profit and loss mainly included government subsidies of 5.27 million yuan, other non-operating expenses - 4.1 million yuan, net profit of 103 million yuan (yoy +81.7%). The company's revenue for the first quarter was slightly lower than our expectations, or related to the high sales base for the same period last year; thanks to the company's significant loss reduction results, 24Q1 net profit after deducting non-return to mother exceeded expectations, and net operating cash flow increased sharply to 890 million yuan (yoy +82.8%).
The cost structure continues to be optimized, the loss reduction effect is remarkable, and profitability is improved. Benefiting from structural optimization and declining product costs, the company's 2024Q1 gross margin was 37.2% (yoy+0.4pct), sales expenses ratio 11.9% (yoy-0.6pct), management expenses ratio 11.8% (yoy-0.2pct), and internal operating efficiency continued to improve. Other subsidiaries continued to reduce losses, and the company's overall operating profit continued to grow to 169 million yuan (yoy +34.4%), and the operating profit margin was 4.7% (yoy+1.1 pct). 2024Q1 income tax rate 21.4% (yoy-7.3pct), profitability continued to be optimized.
The second half of the 14th Five-Year Plan period will place more emphasis on barriers, large product matrices, production and supply system upgrades, and digital transformation. On April 16, the company released the outline of the “14th Five-Year Strategic Plan Mid-Term Evaluation and Adjustment Report”. The strategy will adhere to the main tone of “Second Entrepreneurship and Revitalize Yanjing”, while optimizing some of the expressions in the “Twelve Major Strategic Initiatives”, including 1) consolidating existing barriers, repairing shortcomings, upgrading the market form, and seizing voice. 2) Build a large single product matrix around the U8 core. 3) Accelerate the promotion of an excellent management system and restructure the production system. We need efficiency, goals, and profit. 4) Promote the transformation and upgrading of the supply chain and build a core competitiveness and profit center. 5) Deepen digital transformation and strengthen group control and empowerment capabilities (this section is new). Overall, on the basis of the company's emphasis on market defense in the past 2 years, the company's strategic initiatives further emphasized channel deepening and product matrices, etc., which not only affirmed the results of early work, but also reflected its firm determination to reform, and placed higher demands on future development. U8 sales volume has exceeded 530,000 kiloliters in 2023, and the 14th Five-Year Plan target of one million tons can be expected.
Profit forecast and investment rating: Looking ahead to 2024, we expect U8 products to maintain good growth, and a diverse matrix of large single products will drive the company's volume and price to rise sharply. The company will further promote production, research and marketing reforms and optimize the supply chain. With reforms to reduce losses, there is considerable room for improving the company's profitability. We maintain the company's 2024-26 net profit forecast of 9.0/11.7/1.43 billion yuan (2024-26 net profit growth rate is 40%/30%/22%, corresponding net profit margin is 5.8%/7.1%/8.2%, respectively), and the latest closing price corresponding to 2024-2026 PE is 30/23/19 times. We are optimistic about the company's long-term growth. There is still plenty of room for improvement in profitability, and maintain the “buy” rating.
Risk warning: Competition in the industry has intensified, the recovery of the ready-to-drink scene falls short of expectations, the results of reforms have fallen short of expectations, food safety, and raw material costs fluctuate.