Incident Overview

In 2023, the company achieved operating income of 3.625 billion yuan, +15.90% year on year; net profit to mother of 280 million yuan, +31.04% year on year; net profit after deducting non-return to mother of 231 million yuan, +32.76% year on year. 23Q4 achieved operating income of 1,647 million yuan, +3.06% year on year; net profit to mother of 277 million yuan, -4.20% year on year; net profit after deducting non-return to mother of 271 million yuan, -2.37% year on year.

24Q1 achieved operating income of 725 million yuan, +6.76% year-on-year, net profit of 25 million yuan, +331.26% year-on-year, after deducting net profit of 20 million yuan from non-return to mother.

Analytical judgment:

Continuing to advance the two-wheel drive strategy, the new product performed brilliantly

In 2023, the company focused on the “two-wheel drive” strategy, with the main goal of cultivating a “second growth curve” and actively optimizing resource allocation. While striving to restore and grow the original business, the company fully exploited development opportunities in new categories, driving revenue growth of 15.9% year-on-year to reach 3.625 billion yuan.

By product, the company's brewing and instant drinking achieved revenue of 2,686/901 million yuan, respectively, +9.37%/+41.16% compared with the same period last year. Brewing business companies continue to strengthen product innovation, promote product upgrades around the two major routes of “healthy” and “pan-brewing”, and improve operating capacity during peak seasons to achieve restoration and growth in the brewing business. The ready-to-drink business focuses on two core products, Meco juice tea and Lanfangyuan frozen lemon tea, to explore the growth opportunities of the ready-to-drink business. In the first year of its official launch, frozen lemon tea achieved sales revenue of over 200 million yuan before tax, and its market potential was fully verified.

By channel, the company's distributors/e-commerce, export/ direct management achieved revenue of 32.56/2.50/0.17/0.63 billion yuan respectively, compared with +16%/+7%/+17%/+119%, respectively. The dealer team continued to grow, with a net increase of 199 to 1,531, and the number of full-time instant drink dealers increased dramatically; direct management benefited from the company's active expansion of new channels, and sales doubled year-on-year.

By region, the company's revenue in East China/Central China/Southwest/Northwest/E-Commerce/North China/South China/Northeast China/Direct Operation/Foreign/Other regions was 16.04/5.30/4.64/2.96/2.50/1.89/1.29/0.44/0.63/0.17/ 0.38 billion yuan, respectively, +18%/+11%/+10%/+7%/+18%/+14%/+30%/+119%/+17%/+13%.

Thanks to the steady progress of brewed Spring Festival sales+ready drinks, 24Q1 achieved a year-on-year increase in revenue of 6.76% to 725 million yuan, of which product-side brew/ready-to-drink revenue was 485/234 million yuan respectively, +5.46%/+10.12%, respectively; channel-side direct management continued to more than double the growth of 117.7%, and new channel expansion progressed rapidly.

Cost improvements drive continued profit growth

On the cost side, the company achieved a gross profit margin of 37.5% in '23, +3.73pct; of these, the gross margin for brewing and ready-to-drink increased 4.03/6.63 pct to 44.68% and 18.41%, respectively. We think it was mainly driven by a decrease in raw material costs and an increase in the ready-to-drink scale. On the cost side, the company's sales/management/R&D/finance expenses in '23 were 23.7%/6.3%/0.9%/-1.8%, respectively, compared to +5.8/-1.08/-0.01/-0.55pct. The large increase in sales expenses was mainly due to increased advertising expenses and marketing expenses, and the formation of a ready-to-drink sales team to increase manpower expenses. Taken together, thanks to increased revenue and gross margin, the company's net margin increased 0.89pct to 7.7% year on year, and corresponding net profit to mother increased 31.04% year over year to 280 million yuan.

The gross margin of the 24Q1 company continued the positive trend, rising 2.62 pct to 33.6% year on year, and the cost side sales/management/R&D/finance expenses ratio was 24.0%/7.6%/1.0%/-2.7%, respectively, -2.81/-0.33/0.06/-0.49pct year on year. All expense ratios decreased year on year, and the cost investment efficiency increased steadily; the corresponding 24Q1 profitability increased significantly, and net profit margin increased by 331.26% to 0.25 million yuan year on year, and net margin increased 2.63 pct year on year 3.5%

Brewing upgrade+ready-to-drink volume, competitiveness continues to improve

Looking ahead to 24 years, we are optimistic that the company will continue to promote brewing product upgrades and second-curve ready-to-drink business growth under the guidance of the “two-wheel drive” strategy to enhance overall competitiveness. Brewed product companies continue to explore healthy upgrades, continue to explore development opportunities in the sinking market, and are expected to continue to achieve steady growth; on the one hand, ready-to-drink products continue to explore the product selling point of fruit tea in cups, upgrade the positioning of fruit tea as a “second choice outside of tea shops”, expand diversified channel layout and promote the restoration and momentum of fruit tea; on the other hand, frozen lemon tea continues to take advantage of the victory and create a model market to fully seize opportunities in the lemon tea market, which is expected to be further expanded. We are optimistic that the company will continue to consolidate the competitive advantage of brewed products, accelerate the release of ready-to-drink products, create a second curve, and improve profit quality.

Investment advice

Referring to the company's announcement, we adjusted the forecast of the company's 24/25 revenue of 43.32/4.841 billion yuan to 4296/4.940 billion yuan, adding a forecast of 5.582 billion yuan for 26; raised the 24/25 EPS forecast of 0.83/0.99 yuan to 0.86/1.09 yuan, and added a forecast of 1.32 yuan for 26. The stock price valuation corresponding to April 26, 2024 of 17.59 yuan was 20/16/13 times, respectively, maintaining the buy rating.

Risk warning

Cost pressure relief falls short of expectations, new product promotion falls short of expectations, and industry competition intensifies