Incidents:
On April 23, 2024, Petty Co., Ltd. released its 2023 annual report and 2024 quarterly report: total revenue of $1,411 million in 2023, down 18.51% year on year, net profit to mother of -$11.0911 million, loss of performance; total operating income of 2024Q1 was 384 million yuan, up 142.37% year on year, net profit to mother was 41.7721 million yuan, and loss of 38.734 million yuan for the same period last year.
Investment highlights:
Overseas inventory removal led to a loss in 2023 results, and the 2024Q1 performance turned a year-on-year loss into a profit. Total revenue in 2023 was 1,411 billion yuan, down 18.51% year on year, net profit to mother was -11.0911 million yuan, performance loss; 2024Q1's total operating income was 384 million yuan, up 142.37% year on year, net profit attributable to mother was 41.7721 million yuan. The same period last year was a loss of 38.734 million yuan, turning a year-on-year loss into a profit. In 2023, the consolidated gross margin of the company's main business was 19.33%, down 2.97% year on year.
The export business accounts for the majority of the company's current revenue structure. Inadequate capacity utilization due to the decline in export orders in the first three quarters was the main reason for the change in gross margin in 2023.
The overall gross margin of the domestic market business has remained stable. As a result, overall performance showed the characteristics of first low and then high: affected by inventory removal in overseas markets, especially in the US market, it experienced a process from active inventory removal to active inventory replenishment, and the export business showed a trend of continuous improvement from month to month. In 2024, as the business in both foreign and domestic markets is on a growth track, capacity utilization continues to increase, and gross margin is expected to increase.
Accelerate independent brand building. The company focuses on the pet food industry. All tasks are guided by the “one, two wings” development strategy, and closely revolve around the two core tasks of independent brand building and global operation.
The independent brand strategy continues to unleash operating results: the business scale and share of revenue of independent brands have increased rapidly, and the share of revenue generated by key brands has risen sharply, reflecting the results of brand building. Product categories continue to be rich: the proportion of staple food products continues to increase, and staple food production capacity will achieve “from nothing, from good to excellent, from small to large”, and self-built dry food and wet food production lines will gradually be put into operation and production capacity will be released.
Profit forecast and investment rating Taking into account the restoration of the company's performance in 2024Q1, we adjusted the total revenue of the 2024-2026 company to be 20.16/23.44/2,782 million yuan, and net profit attributable to mother was 123/2.04/264 million yuan, corresponding to PE 30/18/14 times, respectively. However, considering that the company's subsequent performance is expected to improve month-on-month, and the focus of future development is still on domestic independent brand building, it still has good growth attributes in the long run and maintains a “buy” rating.
Risks indicate risks caused by trade barriers; risk of increased competition in overseas markets; risk of fluctuations in raw material prices; risk of exchange rate fluctuations; risk of company performance expectations falling short of expectations