1Q24 results are in line with our expectations
The company announced 1Q24 results. Revenue reached 500 million yuan, an increase of 17.9%, and net profit to mother reached 13.968 million yuan, an increase of 2.8%. The performance was in line with our expectations. We believe that the current overseas channel inventory of pet products has fallen back to normal levels. The restoration of customer order pace is expected to drive the company to continue to repair export orders for pet products. Domestic pet food brand agents are also cooperating to advance, and the company's operations are expected to continue to improve under two-wheel drive.
Development trends
1. Overseas orders for pet products continue to be repaired, and the pet food business continues to grow rapidly. The company achieved revenue of 500 million yuan in 1Q24, an increase of 17.9%. We expect 1) Pet products: According to the General Administration of Customs, the year-on-year decline in export value of 1Q24 animal saddles and harnesses narrows to -3.6%. As overseas channel inventory removal progresses, downstream customer orders for pet products are expected to continue to recover, driving the company's OEM export business to continue to improve; 2) Pet food: According to data from Jiuqian and Flying Melon, the online sales volume of foreign brands represented by 1Q24 Royal and Hope also increased 5.5%. Food agency business Rapid growth is expected to continue.
2. Profitability is stabilizing, and the quality of operation has improved. On the gross profit side, the company achieved 16.7% gross margin in 1Q24, a decrease of 0.1 ppt. On the expense side, 1Q24 company's sales/management/finance expense ratios were +1.8/0.1/-1.5ppt, respectively, and exchange earnings decreased year-on-year due to changes in financial expense ratios. Under the combined influence, the company's net profit margin for 1Q24 reached 2.8%, a decrease of 0.4ppt. At the same time, with the improvement of OEM orders for pet products and the return of food agents to normal procurement, the company's net 1Q24 operating cash flow was corrected year-on-year, and the quality of operations improved.
3. Optimistic about the company's growth space as a one-stop supplier of pet products, the pet products and pet food business is expected to grow in two rounds in 24 years. We believe that 1) Pet products: The company's supply chain advantage is leading the world. At present, it has built a rich product matrix to meet the customer's one-stop procurement needs. The decline in overseas inventory is expected to drive the company's continuous improvement in orders in 24 years. Furthermore, the company began global production capacity construction in Vietnam, Poland and other places in 23, and some orders for iron products and cat crawlers are expected to be transferred to overseas factories, and manufacturing capacity and customer service capabilities are expected to be further improved; 2) Pet food: China's high-end pet food market continues to expand. The company has become a domestic market distributor for leading overseas brands, along with channel construction and brands With the deepening of cooperation such as promotion, food agent revenue is expected to increase rapidly.
Profit forecasting and valuation
The profit forecast for 24/25 remains unchanged, and the current stock price corresponds to 18/16 times P/E for 24/25. Keep the outperforming industry rating and target price of 27.5 yuan unchanged, corresponding to 26/23 times P/E in 2024/25, with 49% upside.
risks
Risk of changes in overseas market demand, risk of exchange rate fluctuations, risk of loss of core customers, risk of additional tariffs, risk of outsourcing production model operation.