The company released its 2024 quarterly report
Q1: Revenue of $853 million (+11.34%), net of $176 million (+37.2%), net of $147 million (+23.47%).
Revenue fell slightly short of market expectations, and profit exceeded expectations.
Revenue: Chinese growth is driven by food extracts
Product: Hot Pot Seasoning/ Chinese Polymix/ Sausage and Bacon Winter Blend were +1.2%/+17.8%/+21.8%, respectively. Poor popularity of hot pot condiments affected the overall growth rate, and Chinese growth was driven by food extraction.
Channel: Excluding the influence of food extracts in Q1, the endogenous portion is expected to achieve medium single-digit year-on-year growth. The food extract business focuses on small B-side development, and subsequent collaboration efficiency is high.
Profitability trend upward
Q1 gross margin was +3.4pct year over year to 44.05%, driven by a downward trend in raw material costs.
Q1 Sales/management/R&D expense ratios changed by +2.2/-0.8/-0.1 pct, respectively. Marketing investment in sales expenses increased, and the rest of the cost control was steady.
The net interest rates of Q1 attribute/ non-return to mother were +3.9/+1.7pct, respectively, to 20.63%/17.22% year-on-year, and profitability continued to improve. The difference between net profit attributable to mother and net profit not attributable to mother is mainly an increase in investment income of about $22 million over the previous year (exit from the Qianxihe Project), while wealth management income increased.
Investment advice
Our point of view:
Costs are basically manageable for 24 years, and the upward trend in gross margin has not changed. Profitability is expected to continue to increase as cost ratios are optimized. The company set a challenge target of +15% revenue and +20% net profit over 24 years, and the guaranteed goal of employee shareholding plan revenue of +10% year-on-year.
Profit forecast: Combined with the above, we expect the company to achieve total operating revenue of 36.35/41.84/4.755 billion yuan in 2024-2026, +15.1%/+13.7% year over year; achieve net profit of 549/6.59/775 million yuan, +20.3%/+20.1%/+17.5% year over year; current stock price corresponding PE is 27/23/19 times, respectively, maintaining a “buy” rating.
Risk warning
Macroeconomic downside risks, industry competition intensified, regional expansion fell short of expectations, new product releases fell short of expectations, repeated epidemic pressure on sales, catering repairs fell short of expectations, and food safety incidents.