Key points of investment
Petty Shares Releases 2023 Annual Report & 2024 Quarterly Report:
1) In 2023, Petty Co., Ltd. achieved operating income of 1,411 billion yuan, a year-on-year decrease of 18.51%; net profit loss to mother was 11.09 million yuan, which turned into a year-on-year loss; the pressure on the 2023 performance was mainly affected by overseas inventory removal.
2) 2024Q1's revenue was 384 million yuan, up 142.37% year on year, mainly due to export order repair and high revenue growth under a low base; 2024Q1 net profit to mother was 41.71 million yuan, reversing the loss year on year, with a net interest rate of 10.85% (23Q1-Q4 was -24.01%/-1.38%/3.19%/3.65%, respectively), and profit margin repair was due to improved gross margin due to increased capacity utilization (23Q1-24Q1 was 14.04%/16.11%/18.41% /24, respectively) %/ 24.36%), repair and dilution costs of export revenue.
The inflection point of export sales is evident, and the benefits of overseas bases have entered a release period
Petty Co., Ltd. was affected by inventory removal from overseas markets in the first half of '23, and revenue and profits were under pressure; according to the company's announcement, orders gradually returned to normal starting in the second half of 2023. Overseas sales of Petty's 23H1/H2 were 38/695 million yuan respectively, or -50.2%/-3.5%. The second half of the year improved markedly, and overall revenue in 24Q1 increased, further verifying the inflection point of export sales repair. In addition, in 2024, a production line with an annual output of 40,000 tons of high-quality staple food in New Zealand will be officially put into operation, which is expected to enrich the product matrix, expand customers, and contribute to growth.
The benefits of Petty Co., Ltd.'s overseas base have entered the release period. Taking the Cambodian plant as an example, the revenue of the Cambodian subsidiary in 21-23 was 0.47/1.53/254 million yuan, respectively. Along with the increase in capacity utilization, the corresponding profit for 21-23 was -0.18/-0.44/-0.02 billion yuan, respectively. According to the company announcement, the Cambodian factory was already profitable in the first quarter of '24, and is expected to contribute more profits along with the increase in capacity utilization.
Independent brands continue to gain strength and maintain rapid growth
The company created a multi-brand matrix, and the Jueyan brand launched canned dog snacks, transforming from a “hot product” to a “popular brand”. According to the company's announcement, Petty's 23H1/H2 domestic sales were 126/224 million yuan respectively, +14.7%/+35% year-on-year, showing significant acceleration in the second half of the year. According to the company's announcement, the company will rely on its existing customer base to focus on expanding staple food products. Compared with snack foods, staple foods have a wider market space, further helping the development of its own brands.
The company's repurchase shows confidence, with a repurchase ratio of over 4.7%
According to the company's announcement, Petty Shares repurchased 1.8% of the shares for the first time (March '22 to March '23), with an average price of RMB 16.29 million; the second repurchase (April '23 to October '23) of the shares was 1.8%, with an average price of RMB 5.99 million, with an average price of RMB 13.06 per share; and the third repurchase (February '24 to March '24) of 1.14% of the shares, amounting to RMB 29.64 million, with an average price of RMB 10.28 per share. The total repurchase amount for the above three times exceeded 160 million yuan, and the repurchase ratio was over 4.7%. According to the company's announcement, Petty Shares plans to cancel the 4.59 million shares already repurchased, accounting for about 1.8% of the share capital, further giving back to investors.
Profit forecasting and valuation
Previously, Petty Co., Ltd. experienced overseas inventory accumulation and inventory removal processes, which caused large fluctuations in revenue and profit. As export sales gradually returned to normal, new factories contributed revenue and increased capacity utilization to release profits to ensure the company's future revenue and profit growth.
Petty's 2024-2026 revenue is expected to be 19.34/23.96/2,819 billion yuan, respectively, and +37%/+23.9%/+17.7%, respectively; 2024-2026 net profit to mother will be 1.48/1.92/229 million yuan, respectively, reversing the year-on-year loss/+29.8%/+19.4%, respectively. The corresponding PE is 23.29x, 17.95x, and 15.04x, respectively, maintaining the “buy” rating.
Risk warning
Independent brand cultivation falls short of expectations; overseas demand falls short of expectations; high customer concentration; risk of exchange rate fluctuations