Key points of investment:
Event: The company released its 2023 annual report and 2024 quarterly report. According to the company's announcement, in 2023, the company achieved operating income of 3.264 billion yuan, a year-on-year increase of 25.85%, and a net profit of 809 million yuan, an increase of 55.28% over the previous year. 2023Q4 achieved operating income of 807 million yuan, a year-on-year decrease of 14.9%, and net profit to mother of 144 million yuan, a year-on-year decrease of 33.37%. In 2024Q1, the company achieved operating income of 802 million yuan, up 5.5% year on year, and net profit to mother of 169 million yuan, down 9.8% year on year. The company's 2023 results were in line with expectations, and 2024Q1 performance fell short of expectations.
Investment rating and valuation: Due to short-term pressure on external demand, the strong momentum has weakened, the profit forecast for 2024-2025 was lowered, and the profit forecast for 2026 was added. Net profit for 2024-2026 is predicted to be 8.45, 9.95, and 1,118 million (the previous 2024-2025 was 947 million and 1.12 billion), with year-on-year increases of 4.4%, 17.7%, and 12.5%, respectively. The current stock price corresponding to PE in 24-26 is 25x, 21x, and 19x, respectively, maintaining an increase rating. Bairun has a clear first-mover advantage in the pre-blending industry, with strong R&D strength. The executive team has been working in the pre-blending field for 20 years and has extensive industry experience. The company's flavor and base wine business have formed effective collaboration with the pre-blending business. Since 22 years, the company's “358” product matrix has achieved breakthrough development. The second- and third-level engines have gradually taken shape. The future will be accompanied by new product launches and iterations. The company still has growth potential.
2023Q4 is strong under pressure, and 2024Q1 refreshingly boosts revenue. According to the company's announcement, in terms of business, the company's pre-blended cocktail/edible essence business achieved revenue of 28.84/317 million in 2023, respectively, an increase of 27.76%/13.18% over the previous year.
On a quarterly basis, the company's revenue in Q1 to Q4 in 2023 was +41%/+79%/+32.5%/-14.9%, respectively. In 23Q4, due to base pressure, combined with weak demand for optional consumers, the strong popularity weakened, leading to revenue pressure. The company continues to cultivate the “358” product matrix, launch a limited edition of Qiangshuanglong at the beginning of '24, and replace and upgrade the Q1 Refreshment. We expect 24Q1 Clean to achieve good growth, driving Q1 revenue to increase 5.5% year-on-year, and the growth rate improved month-on-month.
Product structure affects gross margin performance, and increased marketing expenses put pressure on profits. 2023Q4's gross margin fell 0.81 pct year on year to 66.17%, which is expected to be dragged down mainly by strong high margin performance. The sales expense ratio increased by 3.5 pct to 26.4% year over year, and the management expense ratio increased 2.6 pct to 8.3% year over year. The above factors dragged down the 23Q4 net income margin of the company to fall by 4.9pct to 17.84%. Thanks to cost improvements, the 24Q1 gross margin increased by 2.9 pct to 68.3% year over year, while sales expenses increased 8.77 pcts year over year due to factors such as the company's increased investment in Spring Festival marketing in the Year of the Dragon and increased market expenses for product replacement and upgrades, which dragged down the company's 24Q1 net profit margin. In 24Q1, the company's net profit margin was 21.07%, down 3.66pct year-on-year.
The catalyst for stock price performance: Slight and classic growth rates exceeded expectations; new product performance exceeded expectations.
Core hypothesis risk: The competitive landscape deteriorates due to the large number of new entrants.