2023 and 1Q24 profit in line with market expectations
Revenue in 2023 was 299 million yuan, -18.94% YoY; net profit to mother was 93 million yuan, -14.93% YoY. 1Q24 revenue was 59 million yuan, -18.19% YoY; net profit to mother was 119 million yuan, -7.66% YoY. 2023 and 1Q24 profits are in line with market expectations.
Development trends
In 2023, the probiotics business showed rapid revenue growth. The compounding business is still under some pressure, and revenue is under pressure under high 1Q24 base. In 2023, the company's revenue for edible probiotics/compounds/animal and plant microecological preparations was 1.92/0.73/0.25 billion yuan, accounting for 64.1%/24.4%/8.5% of revenue, respectively, and revenue was +37.4%/-57.8%/-39.0% year-on-year respectively. We believe that the company's probiotic products are strong; the rapid revenue growth rate in 23 years mainly benefited from strong downstream demand and the volume of core customer products (such as Chen Yi Story, Mengniu, etc.). The decline in the compound business was mainly due to weak demand in the room temperature yogurt industry, rising raw material costs, and reduced downstream customer purchases. 1Q24's revenue was -18.2% year over year. We estimate that revenue from edible probiotics was basically the same year on year, and compound revenue was still under pressure year on year (1Q24 is a high base).
In 2023/1Q24, the company's gross margin was 54.6%/54.3%, compared to +2.6ppt /+1.8ppt. We believe it mainly benefited from the increase in the share of the high-margin probiotic business. The gross profit margin of the edible probiotic business in 2023 was 65.6%, +2.3ppt. 2023/1Q24 sales expense rates were +4.0pp/ -1.5ppt, R&D expenses were +5.4pp/ +4.6ppt, respectively, and management expense ratios were +0.0ppt/+1.8ppt, respectively. Among them, R&D expenses continued to increase. We think it is mainly related to the company's increase in basic R&D investment in edible probiotics. Overall, the 2023/1Q24 net profit margin was +1.5/+3.6ppt year-on-year, and profitability improved.
2024 outlook: The company will continue to deepen the steady growth of its probiotics business. According to the company's announcement, in 2024, the company will strengthen the product strength and cost advantage of the edible probiotics business, stick to the ToB business as the focus, and gradually improve online and offline probiotic ToC business channels. At the same time, the company will accelerate the construction of R&D and production base projects and microecological formulation production base projects in the food sector, and complete and put into operation as soon as possible.
Profit forecasting and valuation
Considering that revenue from the compound distribution business in 2024 is still under pressure, we lowered our net profit for 24 by 11.6% to $123 million, and introduced a new net profit of 166 million yuan for the year 25. The current share price corresponds to 36.1/26.9 times 24/25 P/E. Maintaining an outperforming industry rating, we maintained a target price of 17.67 yuan, corresponding to 42.5/31.7 times the 24/25 P/E, which is about 4.7% higher than the current stock price.
risks
Compounding continues to decline sharply, competition for probiotics intensifies, ability to take orders is declining, food safety, etc.