Matters:
The company released its 2023 annual report. Net profit for the full year of 2023 was 3.207 billion yuan, +31.62% year over year; net profit to mother was 530 million yuan, +54.22% year over year; single Q4 revenue was 875 million yuan, -0.82% year over year; and net profit to mother was 143 million yuan, -8.47% year over year. In Q1 2024, revenue was 895 million yuan, +9.28% year over year; net profit to mother was 155 million yuan, +6.66% year over year. The company plans to pay a cash deposit of 3 yuan (tax included) for every 10 shares.
Commentary:
Strong growth was as planned in 23 years, but Q4 and Q1 revenue fell short of expectations due to a high base and weakening demand. Driven by zero-addition dividends, there was a net increase of 1,020 to 3,250 dealers in '23, driving the company's revenue to increase by 31.6%. Among them, with the exception of vinegar, which only increased by 11.8%, the remaining soy sauce/other categories achieved a high increase of +34.9%/+36.6%, respectively. The volume and price of soy sauce rose sharply (+33.2%/+1.2%, respectively) due to strong demand.
Looking at a single quarter, excluding the wrong period affected Q4+Q1 revenue by +4.7%, soy sauce/vinegar ratio +2.8%/-8.5%, and revenue was lower than previously anticipated. The main reason was that the zero addition incident had a peak impact of the same period last year. 22Q4/23Q1 achieved a very high base of 54.9%/69.8%, respectively. Second, the effects of weakening external demand and speeding up the launch of zero-additive products by major competitors. Third, channel expansion slowed down, and the number of new dealers in 24Q1 dropped to 106 from 200-300 in the previous quarter.
Profits were released rapidly in '23, driven by strong demand, while profits declined in 24Q1 due to increased investment and structural decline. In '23, we achieved a gross profit margin of 37.1% and a sales expense ratio of 12.2%, respectively. This was mainly due to strong terminal demand and a rapid increase in gross sales margin. Coupled with the reduction in the impact of credit impairment, we finally achieved a net profit margin of 16.5%, +2.4 pcts year over year. Looking at Q1 alone, although costs have remained declining, the company's gross margin was -3.1 pct to 36% year over year. The main reason was that promotional discounts were significantly reduced last year to achieve a very high gross margin base. Second, it was due to delays such as a decline in the share of high-margin e-commerce and an increase in the share of affordable distribution products. In terms of expenses, the Q1 sales expense rate/management expense rate/R&D cost rate/financial expense ratio were +0.1/-0.9/-0.2/-1.1 pcts year over year, respectively. The decline in the management expense ratio was mainly due to a decrease in incentive fees. In the end, Q1 achieved a net interest rate of 17.3% to mother, -0.4 pcts year over year.
The company returned to endogenous natural growth in '24, and its operations focused more on intensive channel cultivation and sinking strength, and annual revenue is expected to achieve a steady growth rate of 10-15%. Looking ahead to the whole year, considering zero-addition events, dividends are declining and the competitive environment is becoming intense. On the one hand, the company is currently accelerating efforts towards endogenous growth. On the one hand, it is about expanding dealers to properly slow down, strengthen and optimize the structure of internal dealers, and match market operation manuals, and on the other hand, maintain positive channel expansion efforts. One is to launch the “Qianhe into a Thousand Villages” plan. The first is to launch the “Qianhe into a Thousand Villages” plan. The second is to anchor and increase the number of terminals in the foreign port market. In addition, in the base market, in eastern Chongqing, Guizhou and Yunnan still have room to expand. In terms of pace, due to the quarterly decline in last year's base and the company's gradual increase in market strength, annual revenue is expected to be low and high, while profits are also expected to be slightly better than revenue performance due to lower costs of soybeans and packaging materials and lower incentives.
Investment advice: Revenue was lower than expected, steady progress for 24 years, and given a “recommended” rating. The current development trend of the company is basically in line with our previous judgment on the rhythm of “driven by external events - driven by strong sales - driven by natural sales”. Although the growth rate has declined, the company has followed the trend to increase its intensive terminal cultivation and sinking strength, and is also actively seeking growth opportunities on the basis of maintaining stability. Based on the quarterly report, we lowered the 24-25 EPS forecast to 0.60/0.69 yuan (the original forecast was 0.63/0.73 yuan), and introduced a 26-year forecast of 0.79 yuan. The current stock price corresponds to PE 28/24/22, and the target price is 18.1 yuan, which corresponds to about 26 times PE in 25 years, and adjusted to a “recommended” rating.
Risk warning: sluggish downstream demand; increased market competition; increased cost investment; food safety issues, etc.