Q1 Operation is under pressure, and demand is expected to improve
Revenue/net profit to mother was 26.49/970 million in 2008, -6.1%/+168.2% year-on-year; of these, 23Q4 achieved revenue/net profit of 5.82/64 billion, year-on-year, -14.8% /loss, in line with the previous performance forecast (net profit to mother of 93-1.03 billion yuan is expected to be achieved in 23). The faster profit growth rate in 23Q4 was due to the contribution of land compensation revenue ($430 million) and an improvement in the cost ratio. 24Q1 achieved revenue/net profit to mother of 6.42/170 million, -9.2%/-8.1% YoY. Looking ahead to 24, consumer demand is expected to recover steadily. In addition, the company is actively implementing a “fresh strategy” and reserving a variety of new products to drive growth. On the profit side, raw milk prices are expected to remain low, and the net interest rate of the company's main business is expected to rise steadily as cost control continues to pay off. We expect EPS to be 0.42/0.45/0.48 yuan from 24 to 26. Referring to comparable companies, the average PE value for 24 years is 24 times (Wind agreed), and the company is given 24 times PE in 24 years, with a target price of 10.19 yuan (previous value of 12.25 yuan) to maintain the “gain” rating.
The 23Q4 liquid milk business continues to be under pressure. Looking forward to continued improvement in demand. By product, liquid milk/other dairy/animal husbandry achieved revenue of 156.5/73.6/1.76 billion, -2.8%/-8.0%/-33.5% YoY; 23Q4 revenue YoY -14.2%/-15.5%/-48.1%, mainly due to slow recovery in domestic demand for dairy products and intense industry competition. 24Q1 revenue was -13.7%/+1.0%/-0.7%, the year-on-year decline in liquid milk/animal husbandry revenue narrowed month-on-month, and the year-on-year growth rate of revenue from other dairy products was positive. By region, Shanghai/overseas/overseas regions respectively achieved revenue of 71.1/117.1/7.32 billion in 23, -4.1%/-13.3%/+6.0% year-on-year, and overseas regions achieved steady growth; 24Q1 revenue was -11.0%/-16.2%/+5.6% year-on-year. By channel, direct-management/distributor/other channel revenue in '23 was $59.0/201.3/110 million, -17.7%/-1.9%/-23.2% year-on-year.
24Q1 gross margin was -0.3 pct year on year, sales expense ratio continued to decline, net margin was flat year on year 23 gross margin +1.0 pct to 19.7% year on year (including 23Q4 +3.7 pct to 23.2% year on year); 23 year sales/management rate was -0.3 pct/+0.2 pct year on year to 12.0%/3.3% (of which 23Q4 was -2.4 pct/+0.1 pct year on year to 10.6%/3.8%), sales expense control continued to be effective. In the end, the net interest rate for the year 23 was +2.4 pct to 3.7% year on year (+11.2 pct to 11.1% year on year in 23Q4), and after excluding 432 million land compensation income, the net interest rate to mother was 2.0%, +0.7 pct year on year. The 24Q1 gross margin of the company was -0.3 pct to 19.6% year on year, and the sales/management rate was -0.3 pct/+0.1 pct to 11.5%/3.3% year on year. The sales expense ratio continued to decline, and finally recorded a flat net profit margin of 2.7% year on year.
Adhere to a fresh strategy and maintain a “increase in holdings” rating
We are optimistic that the company will stick to the “fresh strategy” and promote the nationwide implementation of low-temperature milk, but considering the slow recovery in consumer demand, we lowered our profit forecast. We estimated that the company's EPS for 24-25 will be 0.42/0.45 yuan (previous value 0.56/0.66 yuan), and introduced 0.48 yuan for EPS in '26. The target price is 10.19 yuan, “increase in holdings”.
Risk warning: fluctuating raw material prices, lower-than-expected macroeconomic performance, food safety issues.