1Q24 results fall short of market expectations
The company announced 2023&1Q24 results: the company's revenue in '23 was 2.71 billion yuan, +13% year on year, net profit to mother was 140 million yuan, -28% year over year; 4Q23 company revenue was 630 million yuan, +13% year over year, and net profit to mother was 4.73 million yuan, -101% year over year. 1Q24's revenue was 640 million yuan, +1% year-on-year, and net profit to mother was 4.544 million yuan, -92% year-on-year. The 23-year results were basically in line with market expectations. The 1Q24 results were lower than market expectations, mainly due to weak liquid milk revenue and increased losses from the Xinnong Dairy industry and the loss of eliminated cattle.
Development trends
Weak demand dragged down liquid milk performance, and 1Q24 revenue performance was under pressure. The revenue of 4Q23 and 1Q24 companies was +13%/+1.5%, respectively. In the two quarters, the total revenue increased by about 7% year on year, mainly due to weak demand. By region in '23, revenue from domestic/overseas was +6%/+20.8%, respectively; by product, revenue from room temperature, low temperature, and animal husbandry products was +18.7%/+7.6%/-10.1%, respectively. The room temperature sector maintained a good growth trend, mainly due to the expansion and consolidation of Tetra Pak brick products overseas. Looking at 1Q24 by region, domestic/overseas revenue was -0.8%/+4.2%, respectively; by product, revenue from room temperature, low temperature, and animal husbandry products was +2.6%/-2.3%/+10%, respectively. The relatively weak performance of normal low temperature products was mainly due to the weak sales performance of the 1Q liquid milk industry.
The increase in Xinnong Dairy's losses and impairment losses on herd assets dragged down the results in '23 and 1Q24. The company's gross margin was +1.2ppt year on 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, gross margin of room temperature and low temperature products in '23 was +2.7/+0.6 ppt year-on-year. Sales/management rates were +0.2ppt year over year, and the performance was steady in '23. Due to the increase in losses in Xinnong Dairy and the increase in production biological asset disposal losses, the net interest rate in '23 was -2.9ppt year-on-year, which dragged down profit growth. The gross margin of the 1Q24 company was -3.6ppt year-on-year, mainly due to depreciation of the newly invested factory; the 1Q sales rate was basically flat, while the management/finance rates were +1.2/+1.0ppt, respectively, mainly due to the increase in the impact of the commissioning of the new plant and the acquisition of new agricultural loans. Profit performance in 1Q24 was under pressure due to increased losses from Xinnong Dairy and losses from eliminated cattle.
Operations are under pressure in the short term. It is recommended to focus on the progress of demand recovery and animal husbandry performance. Due to weak consumer demand, the 1Q24 company's revenue growth fell short of expectations. At the same time, due to previous mergers and acquisitions of new farmers and falling milk prices, animal husbandry asset performance was under pressure. Taken together, these two factors put pressure on the company's operations. Looking ahead to 24 years, there is still uncertainty about the recovery in consumer demand. It is recommended to focus on subsequent improvements in market demand. Furthermore, the company's current performance is being dragged down by the animal husbandry industry, and follow-up suggestions focus on the animal husbandry performance.
Profit forecasting and valuation
Taking into account weak demand and animal husbandry pressure, the 24-year profit forecast was lowered by 61% to 90 million yuan, and the 25-year profit forecast was introduced to 160 million yuan. The company traded at 35/20 times 24/25 P/E; optimistic about the company's long-term overseas market expansion, but considering lowering the profit forecast, the target price was lowered by 23% to 10.8 yuan, corresponding 38/22 times the 24/25 P/E and 10% upward space, maintaining an outperforming industry rating.
risks
Demand is weak, competition is intensifying, and raw material prices are fluctuating.