Key points of investment
Incident: On April 23, the company released its 2023 annual report and 2024 quarterly report. The company's total revenue in 2023 was 1,411 billion yuan (-18.51% YoY), net profit to mother was -011 million yuan (-108.72% YoY), after deducting non-net profit of -0.07 billion yuan (-105.09% YoY). Among them, Q4's revenue in 2023 was 495 million yuan (+31.18% YoY), and net profit to mother was 18 million yuan, reversing the year-on-year loss. After deducting non-net profit, it was 0.24 million yuan, reversing the year-on-year loss. In 2024, Q1's revenue was 384 million yuan (+142.37% year over year), net profit to mother was 42 million yuan (+209.56% year over year), and net profit after deducting non-net profit was 40 million yuan (+203.22% year over year).
Overseas business gradually resumed, and domestic business continued to grow. Revenue from animal skin chewing gum, vegetable chewing gum, nutritious meat snacks, staple food, and wet food was 4.24, 4.23, 3.18, and 210 million yuan, respectively, in 2023, -22.11%, -34.84%, -5.72%, and +31.33%. The proportion was 30.01%, 29.96%, 22.55%, and 14.88%, respectively. In 2023, domestic sales and foreign sales revenue were 10.62 billion yuan and 350 million yuan respectively, -27.10% and +26.95%, respectively. The revenue share was 75.23% and 24.77% respectively, and the share of domestic business increased by 8.87 pcts year-on-year. Due to inventory side adjustments from overseas customers in the first half of the year, order volume decreased, overseas export business was under pressure, and the company's domestic brands maintained a relatively rapid growth rate. The company's overseas business gradually resumed in the second half of 2023. Currently, all inventory side adjustments for overseas customers have been completed. This year, the Cambodian base and New Zealand staple food factory have gradually gained strength, and there is still plenty of room for future overseas business development. In terms of domestic self-owned brands, the company's Jueyan and Haoshijia brands have performed well. The company is actively expanding online and offline sales channels, and the domestic business is expected to continue to grow as the brand's influence increases.
The company's share of direct sales increased year-on-year, and actively deployed online new media and Taotian flagship stores. In 2023, ODM, distribution and direct sales channels achieved revenue of 1,228 million yuan and 184 million yuan respectively, or -23.21% and +37.85% compared with the same period last year, accounting for 86.98% and 13.02%. The proportion of the company's direct sales continued to increase. With the development of its own domestic brand, the company is actively developing new media channels such as Douyin self-broadcasting and consolidating Taotian flagship stores. Among them, the gross margin of direct sales was 34.11% (+0.35pct year on year), and the gross margin of ODM and distribution was 17.12% (year-on-year - 4.22pct). As the share of direct sales continues to increase, the company is expected to continuously optimize product structure and channel management to improve profitability.
Profitability recovered significantly in Q4 in 2023, and gross margin increased year-on-year in Q1 in 2024. ① Profit, gross margin of 19.33% (YoY -2.97pct), net margin of -1.13% (YoY -8.60pct), of which 2023Q4 gross margin was 24.00% (YoY +10.88pct), and net margin was 2.86% (YoY +11.05pct). The gross margin for Q1 in 2024 was 24.36% (YoY +10.32pct), and the net margin was 10.89% (YoY +34.82pct). ② Expenses. The company's 2023 sales, management, R&D, and financial expenses rates were 7.24% (YoY +2.24pct), 7.85% (YoY +0.86pct), 2.06% (YoY +0.39pct), and 0.29% (YoY +2.21pct), respectively. As customer inventory adjustments come to an end, the company's profitability gradually recovered. The company's gross margin increased year-on-year in Q1 in 2024, and the company's share of domestic private brands and direct sales revenue continued to rise, and there is still room for increase in gross margin.
Investment advice: The inventory side adjustments for the company's overseas customers are basically over. It is expected to remain steady in the future, and the domestic private brand business will maintain rapid growth. As production capacity at the Cambodian and New Zealand bases climbs, the company's performance is expected to be released, and we will adjust the profit forecast for 2024-2025. We predict that the net profit attributable to the parent company in 2024-2026 will be $126 million, RMB 167 million and RMB 211 million respectively, corresponding EPS of 0.50 yuan, 0.66 yuan and 0.83 yuan respectively. The current stock price corresponding PE is 25.89 times, 19.48 times and 15.41 times, respectively, maintaining a “buy” rating.
Risk warning: pet food safety risk, exchange rate fluctuation risk, trade friction risk, risk of poor promotion of own brand.