Incident: The company released its 2024 quarterly report. In 2024, the company achieved revenue of 3.482 billion yuan, +39.80% year-on-year, net profit to mother of 664 million yuan, +33.51% year-on-year, after deducting non-net profit of 624 million yuan, +37.76% year-on-year.
Nationwide expansion is progressing steadily, and new products are growing strongly. The company successfully achieved a good start in the first quarter of 2024. By product: 1) Dongpeng Specialty Drinks achieved revenue of 3.10 billion yuan, +30.1% over the same period. It is expected to benefit from the increase in the number of people returning home during the Spring Festival and the promotion of high Spring Festival weather in the south, and gift-packing performance during the peak season of the Spring Festival; 2) Revenue from other beverages was 380 million yuan, +257.0% year-on-year, and the revenue share increased by 6.6 pct to 10.8% year on year. Among them, the total revenue for water supplementation was 240 million yuan, accounting for 6.92% of the revenue. The company drives sales through CCTV advertising and comprehensive online and offline marketing, such as collaborating with sugar-free tea and games against the cold to replenish water and sponsor marathons to target sweaty scenes, and actively explore sports stadiums, schools, and scenic spots.
By region, in 2024 Q1, Guangdong/non-Guangdong/direct operating revenue was 9.2/21.4 billion yuan, +9.5%/+51.2%/+79.9%. Brand momentum clearly led to accelerated growth outside the province. Among them, East China/Central China/Guangxi/Southwest/North China revenue was 5.0/5.3/2.9/39/4.4 billion yuan respectively, +48.1%/+69.1%/+95.4%. The northern region, southwest China, central China, and east China all maintained a rapid expansion trend.
The decline in raw material prices contributed to cost elasticity, and the level of profit increased steadily. The gross margin of the 2024Q1 company was -0.8 pct to 42.8% year over year, mainly due to the increase in the overall share of new products, which lowered the overall gross profit margin.
In terms of expenses, Q1 company's sales/management/financial expense ratios were 17.1% /3.0/ -1.3%, respectively, and +1.4/-0.3/-1.1 pct, respectively. The slight increase in sales expenses was mainly due to an increase in freezer investment. Early seizure of freezer resources led to an increase in freezer display costs. Overall, the Q1 net interest rate was -0.9 pct to 19.1% year over year.
Growth is expected to continue in 2024 and move towards a diversified platform company. Looking ahead to 2024, the company has set target guidelines for revenue and profit growth of no less than 20%. It is expected that rapid growth will continue through the expansion of outlets outside the province and single-point intensive farming methods. This year, the number of outlets is expected to increase by 400,000. At the same time, new products continue to contribute to growth. This year, Replenishing Water will add a variety of specifications and flavors, and will be promoted through a sports and sweat scenario project. Sugar-free tea will launch 2 new flavors this year, which is expected to achieve rapid volume growth driven by industry trends. Big names are expected to grow steadily this year. Other new products, including VIVI cocktails, coconut juice, etc. are also expected to achieve volume growth as new product reserves. The product matrix is becoming more and more perfect, and the new product planning ideas are gradually becoming clear. It is expected that rapid growth will continue throughout the year, driven by the nationwide development of large single products and the rapid release of new products.
Profit forecast: We expect to achieve revenue of 144/181/22.5 billion in 2024-2026, an increase of 28%/26%/24% year over year, and realized profit of 27/34/4.3 billion yuan, +31%/28%/26% year over year, corresponding to PE 28/22/17X. We gave 32 times PE based on our 2024 results, with a target price of 212.8 yuan for one year, maintaining a “buy” rating.
Risk warning: food safety risks; increased industry competition; risk of rising raw material costs; new product promotion falls short of expectations; network development falls short of expectations.