Key points of investment
The company released its 2024 quarterly report: 2024Q1 achieved total revenue of 641 million yuan, +1.5% year over year; net profit to mother of 4.54 million yuan, -91.7% year over year; net profit after deducting non-return to mother of 22.68 million yuan, or -53.6% year over year. Performance fell short of expectations.
24Q1 room temperature business grew steadily, under pressure from low temperatures: 2024Q1's room temperature/low temperature/animal husbandry business achieved revenue of 363 million yuan/240 million yuan/31 million yuan respectively, +2.6%/-2.3%/+10% over the same period last year.
2024Q1's room temperature business is growing steadily. We expect to see an increase in contributions driven mainly by the demand for Spring Festival gifts and the combined contribution of new farmers. The 2024Q1 low temperature business has declined slightly, and it is expected that demand for products such as Ecrine will be pressured mainly due to weak consumption. 2024Q1 achieved sales of 66,300 tons of dairy products, an increase of 0.63% year on year. We expect the tonnage price of its main product to increase slightly year on year, while the increase in tonnage price is mainly due to product structure upgrades, and products such as room temperature brick milk, which have a higher average price, are growing faster.
Continued expansion of overseas channels, and the overseas market grew steadily: 2024Q1 achieved revenue of 371 million yuan/267 million yuan respectively in domestic/overseas regions, -0.8%/+4.2% year-on-year, and the share of overseas revenue was +1.2pct to 41.8% year-on-year. The 24Q1 domestic revenue pressure is expected to be mainly due to weak demand and adjustments in the student milk business; the steady increase in overseas revenue is expected to be mainly due to the company continuing to develop an empty market outside the country. The 24Q1 company focuses on building a core model market around the Shandong factory in Qiyuan, Shandong, and carries out the “Spring Festival Gathering” campaign to increase terminal delivery rates. By the end of 2024Q1, the number of the company's domestic and overseas dealers was 28 at the end of 23 - 3/+28 respectively, a net increase of 25 to 955 compared to the end of 23, and the overseas channel network was further improved.
Xinnong merger + farming pressure is high, and profitability is under pressure in the short term: 2024Q1's gross margin is -3.6 pct year over year. It is expected that the company's cost dividend will weaken marginally in the context of higher raw milk self-sufficiency rate and higher farming costs after the merger of the new agricultural dairy industry. The 2024Q1 company's sales/management/R&D/finance expense ratios were +0.15/+1.16/+0.01/+0.96pct, respectively. We expect the increase in sales expenses mainly due to weak demand and fierce competition in the industry, and the merger of new agriculture will lead to an increase in the company's management/financial expenses ratio. In 24Q1, the company's non-operating expenses accounted for +3.85pct year-on-year, mainly due to high farming pressure, the company stepped up efforts to eliminate unproductive cattle. Looking at 2024Q1, the company's net interest rate/net interest rate without return to mother was -8/-4.02pct year-on-year, and profitability was under pressure.
Profit forecast and investment rating: The company's 24Q1 performance fell short of expectations. We lowered our 24-26 revenue forecast to $28.65/31.13/3.379 billion yuan (previously expected 30/33.34 billion yuan), +6%/+9% YoY, and lowered the net profit forecast to mother to 1.3/1.6/180 million yuan (previously estimated at 1.8/22/270 million yuan), -8.7%/+23%/+16%. Corresponding PE was 23/19/16x, respectively, maintaining an “increase” rating.
Risk warning: Channel construction falls short of expectations, raw material prices fluctuate greatly, industry competition intensifies, animal husbandry recovery falls short of expectations, mergers and acquisitions fall short of expectations