On April 25, 2024, Junyao Health released the performance report for the first quarter of 2024.

Key points of investment

Revenue declined year-on-year. The total revenue of the profit-side company in 2024Q1 was 396 million yuan (down 11%) and net profit to mother was 0.26 million yuan (up 9% from the same period). Thanks to internal cost structure optimization, 2024Q1 gross margin also increased by 7 pcts to 29.50%. The current gross margin is still low compared to historical levels. As stocks of high-priced raw materials are digested, there is still room for restoration in the future. The 2024Q1 sales/management expenses ratio was 10.83%/8.43%, respectively, with an increase of 1 pct/3 pcts respectively. It is expected to be due to the increase in expenses due to the merger of Runying/the addition of the Pan-Rim Supply Chain business. Taken together, the 2024Q1 net margin also increased by 1pct to 6.49%.

The probiotic business continues to develop, and overseas expansion has achieved remarkable results

Since the company upgraded the product of lactic acid bacteria drinks and added patented probiotic strains, the caliber of lactic acid bacteria drinks was disclosed to probiotic drinks. By product, the 2024Q1 probiotic drinks/probiotic food/other drinks/commodity supply chain revenue was 1.88/0.36/0.20/151 million yuan, respectively, +1%/+25%/+46%/-30% compared with the same period last year. The probiotic business is growing at a high rate. On the basis of integrating Junyao Runying, the company further promoted the integrated layout of the probiotic industry chain and promoted the gradual formation of the company's industrial layout. In addition, Jun Yao Runying was selected in the internationally renowned starter supplier list and is expected to achieve breakthroughs in the starter business in 2024. By sales channel, 2024Q1's distribution/direct sales revenue was 3.52 billion yuan, respectively, -14%/+20% compared with the same period last year. By region, the revenue for 2024Q1 e-commerce, East China, Central China, South China, Southwest China, Northeast China, North China, Northwest China, and overseas regions was 0.03/2.63/0.60/0.13/0.20/0.07/0.05/0.05/0.18 billion yuan, respectively, -68%/-18%/-0.3%/-7%/+2%/+16%/+6%/+10%/+466%. Relying on its competitive advantage in the field of probiotics, the company has achieved remarkable results in expanding overseas markets thanks to multiple efforts in advanced technology and business empowerment.

Profit forecasting

We are optimistic about the company's leading position in the room temperature lactic acid bacteria industry. By adding the company's exclusive core functional strains, the product will be enhanced to enhance the core competitiveness of the product; furthermore, Runying, a leading domestic probiotic company, is expected to continue to gain strength after the company's integration. According to the first quarterly report, EPS for 2024-2026 is expected to be 0.29/0.40/0.54 yuan respectively, and the current stock price is 29/21/15 times PE, respectively, maintaining a “buy” investment rating.

Risk warning

Downward macroeconomic risks, increased risk of market competition, rising costs, growth in the probiotic market falling short of expectations, falling short of expectations in the integration of Runying, and obstruction of overseas market development.