2023 and 1Q24 results are in line with market expectations
The company announced 2023&1Q24 results: the company's revenue in '23 was 26.49 billion yuan, net profit to mother was 970 million yuan, +168% year over year (excluding revenue from land sales of 420 million yuan, +50% year on year, and -8% year on year profit); 4Q23 company revenue was 5.82 billion yuan, -15% year over year, net profit to mother of 640 million yuan, loss of 8.8 million yuan for the same period in '22. 1Q24's revenue was 6.42 billion yuan, -9% YoY, and net profit to mother was 170 million yuan, -8% YoY. Revenue in '23 and 1Q24 fell short of market expectations, mainly due to weak revenue performance from liquid milk, and net profit was basically in line with market expectations.
Development trends
Weak demand and direct business hampered operations, putting pressure on liquid milk revenue performance. The liquid milk revenue performance of 4Q23 and 1Q24 companies was under pressure, -14%/-14% year-on-year, mainly due to weak demand and direct business drag.
By category in 23 years, revenue from liquid milk, other dairy products, and animal husbandry products was -3%/-33%. The decline in animal husbandry was mostly due to the company's active reduction in low-margin feed business; by region, revenue in Shanghai/other regions was -4%/-13% YoY, and performance in other regions was disrupted by demand and competition; by channel, distribution/direct operating revenue in 23 years was mainly due to the decline in supermarket traffic and the decline in animal husbandry.
According to our grassroots research, the company's fresh milk and low-temperature yogurt revenue achieved positive year-on-year growth in '23, while the room temperature business was under pressure year-on-year. On the New Light side, New Light's revenue increased by 6% in '23, and its performance is steady.
Gross sales margin improved in '23, and profit margins remained stable in 1Q24. The company's gross margin was +1.0ppt year over year, mainly benefiting from the decline in raw milk costs and the decline in the share of animal husbandry revenue with low gross margin; by category, the gross margin of liquid milk and other dairy products in '23 was +0.52/+0.97ppt, respectively. The sales rate in '23 was -0.3ppt year-on-year, mainly due to year-on-year optimization of advertising and marketing expenses, and the gross sales margin improved. In addition, benefiting from the revenue contribution of about 430 million yuan in additional land compensation payments, the company's apparent profit increased dramatically in 23 years. On the side of New Light, due to local inflation, increased financing costs, centralized conversion of upfront investment costs, asset depreciation, etc., Sunlight lost 296 million yuan in net profit in 23, dragging down overall profit. The 1Q24 gross profit margin and sales rate were both -0.3ppt year on year, making the gross sales margin and net margin basically flat year over year.
Pay attention to the improvement in demand and wait for the company's operations to improve. The company announced its 2024 business plan: revenue and net profit to mother were 290/567 million yuan respectively, with year-on-year growth rates of 10%/4%, respectively (profit excluding one-time land sales revenue). Looking ahead to 24 years, there is still uncertainty about the recovery in consumer demand. It is recommended to focus on subsequent market demand improvements. In addition, it is recommended to focus on the company's liquid milk subsequent business. In terms of profit margins, considering falling costs, we expect that the company's gross margin may still improve year over year in '24, sales rates are also expected to drop slightly, and the non-profit margin is expected to be relatively stable after 24.
Profit forecasting and valuation
Considering weak demand, the 24-year profit forecast was lowered by 23% to 570 million yuan, and a 25-year forecast of 610 million yuan was introduced. The company's transaction was 22/21 times 24/25 P/E; the target price was lowered by 9% to 10 yuan, corresponding to 24/22 times 24/25 P/E and 8% upward space, maintaining the industry's performance.
risks
Demand is weak, competition is intensifying, and raw material prices are fluctuating.