Incident: **** Dairy released its 2023 annual report and 2024 quarterly report. For the full year of 2023, it achieved operating income of 26.485 billion yuan, -6.13% year over year; net profit to mother of 967 million yuan, +168.19% year over year; net profit after deducting non-return to mother was 523 million yuan, +210.07% year over year. 23Q4 achieved operating income of 5.821 billion yuan, -14.77% year on year; net profit to mother of 645 million yuan, loss of 190 million yuan in the same period in '22; net profit after deducting non-return to mother of 211 million yuan, or loss of 113 million yuan for the same period in '22. 24Q1 achieved operating income of 6.417 billion yuan, -9.25% year over year; net profit to mother of 172 million yuan, -8.07% year over year; net profit after deducting non-return to mother of 186 million yuan, +6.20% year over year.
Terminal performance is yet to recover, and performance is under pressure in the short term. By product, 24Q1 liquid milk/other dairy/animal husbandry products achieved revenue of 35.14/21.73/472 billion yuan respectively, or -13.68%/+0.96%/-0.69% year-on-year. Demand for dairy terminals is recovering slowly, competition in the industry is fierce, and performance is under pressure. By region, the 24Q1 Shanghai/overseas/overseas revenue was 1,736/27.02/1.967 billion yuan, respectively, or -10.95%/-16.15%/+5.64% year-on-year. In overseas business, New Zealand's revenue for the full year of 2023 was 7.361 billion yuan, up 6.37% year on year; net loss for the full year was 296 million yuan. The decline in Sunlight's profit level is mainly due to local inflation, rising operating costs, centralized consolidation of investment projects, and the company's long-term asset consolidation and impairment preparations for the milk powder division. By channel, 24Q1 direct marketing/distribution/other channel revenue was 1,383/49.61 billion yuan, respectively, or -15.67%/-7.15%/+19.77% year-on-year. By the end of the first quarter of 2024, the company had a total of 3,209 dealers, including 481 dealers in Shanghai, a net increase of 20 in 24Q1; 3,728 overseas dealers, a net decrease of 214 in 24Q1.
Expenses were well controlled, and land compensation boosted 23Q4 net profit. In terms of gross margin, the company's gross margin for the full year of 2023/23Q4/24Q1 was 19.66%/23.16%/19.64%, respectively, 24Q1 -0.32pcts year-on-year, and -3.51 pcts month-on-month. On the cost side, the sales expense rates for the full year of 2023/23Q4/24Q1 were 12.01%/10.56%/11.52%, respectively, 24Q1 -0.26pcts year over year, and +0.96pcts month-on-month. The full-year 2023/23Q4/24Q1 management expense ratio was 3.35%/3.75%/3.33%, respectively, 24Q1 +0.10pcts year over year, and -0.42pcts month-on-month. Taken together, net profit margins for the full year of 2023/23Q4/24Q1 were 3.65%/11.07%/2.69%, respectively. 24q1 was +0.03 CTs year over year, and -8.39 pcts month-on-month. Among them, the sharp increase in net interest rate due to the 23Q4 net return interest rate was mainly due to a total compensation of 432 million yuan from land collection and storage contributions. Net interest rates for the full year of 2023/23Q4/24Q1 were 1.97%/3.63%/2.89%, respectively, 24Q1 +0.42cts year over year, and -0.74pcts month-on-month.
Profit forecast, valuation and rating: Considering that terminal sales have yet to recover, the 2024-2025 net profit forecast was lowered to 584/620 million yuan (down 24.91%/32.56% from the previous time), and the net profit forecast for 2026 was 651 million yuan; the corresponding EPS for 2024-2026 was 0.42/0.45/0.47 yuan. The P/E corresponding to the current stock price is 21/20/19 times, respectively. As a leading regional dairy company, the company has a certain competitive advantage and maintains an “increase” rating.
Risk warning: Competition in the industry has intensified, the price of raw milk has risen more than expected, and food safety issues.