Key points of investment
The company released the 2023 annual report and the 2024 quarterly report: the company's revenue in 2023 was 299 million yuan, -18.9%; net profit to mother was 93 million yuan, -14.9% year over year; net profit after deducting non-return to mother was 80 million yuan, -18% year over year. 24Q1: The company's revenue was 59 million yuan, -18.2% year on year; net profit to mother was 0.19 million yuan, -7.66% year on year; net profit after deducting non-return to mother was 0.15 million yuan, -14.2% year on year. Revenue fell short of expectations and profit was in line with expectations.
Compounding continues to drag down revenue, and the probiotics business is performing well. In 2023, the company's revenue for compounding/edible probiotics/animal and plant microecological preparations was RMB 0.73/1.9/0.25 billion, or -57.8%/+37.4%/-39% compared with the same period last year.
The year-on-year decline in compound revenue in '23 is mainly due to weak demand for downstream room temperature acid, and downstream procurement of compound additives will be reduced to monomer additive procurement due to cost reduction and efficiency. We expect the year-on-year decline in 24Q1 blending revenue to be similar to the full year of '23, and compounding pressure will continue to drag down the company's revenue. The company's high revenue growth in edible probiotics in 2023 is mainly due to the volume of core customers such as Chen Yi Story and Yunnan Baiyao, and Mengniu's raw mushroom powder business is expected to grow steadily. The 24Q1 edible probiotics business is expected to remain basically flat year over year under a high base. Currently, there are sufficient orders in hand, and growth can be expected in 24 years. Affected by the downturn in downstream animal husbandry farming, there was a significant year-on-year decline in animal and plant microecological preparations in '23, and the animal and plant business is expected to stabilize in 24Q1.
Product structure upgrade, gross margin improvement. The gross margin of the 23/24Q1 company was +2.6/+1.8pct year-on-year. The increase in gross margin was mainly due to the increase in the share of high-margin probiotics business and probiotics. The gross margin of the 23-year compound/edible probiotic/animal and plant microecological preparation was -10.6/+2.3/-3.8pct to 31%/66%/47%, respectively; the scale effect drove the improvement in the gross margin of probiotics; under downstream weakness, the company's compound tonnage price was -11% year-on-year, and the compound gross margin was under pressure.
Profitability optimization with increased R&D investment and improved gross margin+financial expense ratio. The 23-year sales/R&D/finance expense ratio was +4/+5.45/ -7pct year-on-year, and the 24Q1 R&D/finance expense ratio was +4.6/-5.2 pct year over year. The increase in sales expenses in 23 is expected to be due mainly to the company increasing the promotion of probiotics; the increase in R&D expenses is expected to be mainly due to the company continuing to increase investment in probiotic research and development to consolidate the R&D foundation; and the company's financial expense ratio improving as financial revenue increases. Taken together, the company's net profit margin was +1.5/+3.6pct year on year 23/24Q1, and profitability continued to improve.
Profit forecast and investment rating: 24Q1 revenue was lower than expected, and profit was in line with expectations. We lowered the company's 24-26 revenue forecast to be 4.4/5.9/74 billion yuan (previously 24-25 year forecast was 51/660 million yuan), +48%/32%/27% year over year, and adjusted and added 24-26 net profit forecast of 1.3/1.7/230 million yuan (previous 24-25 year forecast was 1.3/176 million yuan), +35%/37%/31% year over year, corresponding to 24-26 PE 32/23/18x, respectively, maintaining a “buy” rating.
Risk warning: There are risks such as a concentration of customer types, large fluctuations in raw material prices, falling short of expectations in developing new customers, food quality and safety issues, and increased industry competition after the increase in new entrants affects profits
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