occurrences

Revenue in 2023 was $10.99 billion (+9.8% YoY), and net profit to mother was $430 million (+19.3% YoY).

2024Q1's revenue was 2.61 billion yuan (+3.7% YoY) and net profit attributable to mother was 90 million yuan (+46.9% YoY).

Key points of investment

Improve core business capabilities and drive overall profitability

By product, liquid milk/milk powder/others achieved revenue of 97.6/0.8/1.15 billion yuan respectively in 2023, +11.2%/+11.3%/-0.5% compared with the same period last year. In terms of categories, the focus is on low-temperature fresh milk and specialty yogurt. Fresh milk grew by double digits year-on-year in 2023, further increasing its market share. The share of new product revenue in 2023 remained in double digits for three consecutive years, and the “24-hour” high-end share increased dramatically; the channel focused on DTC channel growth and the level of direct channel management, and the overall revenue of the DTC business increased by more than 15% over the same period last year.

By region, Southwest China/East/Northwest/North China/North China/Other regions achieved 41.0/30.2/14.2/11.1/1.34 billion yuan respectively in 2023, +10.0%/+4.8%/-1.0%/+39.0%/+14.9% YoY.

Looking at subsidiary companies, the regions that achieved rapid growth in 2023 are mainly concentrated in East China and Central China. The typical example is Vipshop. Last year, Vipshop achieved an overall revenue growth rate of more than 25%; others such as Anhui Baidi Company, Suzhou Shuangxi Company, and Hunan Nanshan Company in central China all achieved growth of more than 20%.

The upgrade of the milk price dividend superposition structure boosted the gross margin increase. Sales impetus increased as scheduled, and the 2023 milk price downside superposition structure upgrade boosted the company's gross margin to 26.9% (+2.9 pct year on year), and the net profit margin was 4.0% (+0.4 pct year on year). The sales expense ratio was 15.3% (+1.7 pct year over year), and the investment in sales expenses increased; the management expense ratio was 4.3% (-0.4 pct year over year); the R&D cost ratio was 0.4% (-0.1 pct year over year); and the financial cost ratio was 1.5% (same year over year).

2024Q1 gross profit margin 29.4% (YoY +2.3 pct), net profit margin 3.6% (YoY +1.1 pct). 2024Q1 sales expense ratio 17.1% (YoY +1.6pct); Management Expense Ratio 5.1% (YoY +0.7pct); R&D Expense Ratio 0.4% (YoY -0.1pct); Financial Expense Ratio 1.0% (YoY -0.6pct).

In 2023, the dividend ratio increased from 20% in the past to around 30%.

Continuously optimize the asset portfolio and further focus on the main business

In November 2023, considering that the performance fell short of expectations, the company transferred shares in Chongqing Hanhong and Xinao Animal Husbandry, holding 15% and 0% respectively after the transfer.

Profit forecasting and valuation

We believe: ① Revenue side: The company responds flexibly to changes and opportunities in the industry, sticks to focusing on its core business, and is expected to continue to achieve growth beyond the industry market. ② Profitability: In the medium term, the company has clear ideas and detailed plans to improve performance through product structure optimization+cost reduction and efficiency, and flexible net interest rates may be released in an orderly manner. Revenue for 2024-2026 is expected to be 118.5 billion yuan, 129.1 billion yuan, and 13.89 billion yuan, respectively; net profit to mother is 5.3, 66, and 80 billion yuan, respectively; maintaining the holdings increase rating.

Risk warning: food safety issues, increased industry competition, consumer demand falls short of expectations