occurrences

On April 29, 2024, Arowana released its performance report for the first quarter of 2024.

Key points of investment

Falling prices dragged down revenue growth, and profitability remained stable

The company's total revenue for 2024Q1 was $57.274 billion (down 6% from the same period), mainly because the impact of falling product prices exceeded the revenue contribution brought about by the increase in sales volume. Net profit attributable to mother was 882 million yuan (3% increase over the same period). On the profit side, the company's 2024Q1 gross margin was 5.13% (basically the same as year on year), and the sales/management expense ratios were 2.77%/1.55%, respectively, up 0.1 pct/0.03 pct, respectively. Taken together, the company's 2024Q1 net margin increased 0.2 pct to 1.41%. On the cash flow side, 2024Q1's net operating cash flow was 4.915 billion yuan (38% decrease), mainly due to a decrease in sales repayments due to a decline in revenue and changes in the pace of purchase payments.

Sales of core products are increasing, and revenue is under relative pressure

Kitchen food profits increased year-on-year. Retail products/catering and food industry channel products benefited from market recovery. Sales increased year-on-year, while falling raw material costs led to an increase in gross margin of retail products. However, due to relatively low prices, the revenue of channel products in the catering and food industry declined. Among them, the flour business showed losses due to poor market demand, fierce competition, and low by-product prices. Overall, kitchen food still achieved both sales and profit growth. The revenue of feed raw materials and oil technology is under pressure. With economic recovery and the recovery of palm oil prices, the profit of oil technology products increased relatively well year on year; the downstream aquaculture industry of the feed ingredients business had poor profits and weak feed demand, and the company relied on channel advantages to achieve year-on-year sales growth, but the price of feed raw materials products such as soybean meal declined significantly compared to the same period last year due to weak demand due to market competition combined with weak demand.

Profit forecasting

As a kitchen food leader, the company uses its supply chain advantages to open up a new blue ocean for central chefs. It is optimistic that the sinking of the company's channels will bring room for scale growth. As market demand picks up, performance is expected to recover further. According to the first quarterly report, the 2024-2026 EPS is expected to be 0.77/1.00/1.13 yuan, and the current stock price is 41/31/28 times PE, respectively, maintaining a “buy” investment rating.

Risk warning

The risk of macroeconomic fluctuations, the risk of changes in industry policies, consumption recovery falling short of expectations, fluctuations in downstream demand, fluctuations in raw material prices, etc.