Core views
In 2023, the company achieved operating income of 3.747 billion yuan, a year-on-year increase of 15.37%, net profit of 233 million yuan, a year-on-year increase of 120.12%, and plans to distribute a cash dividend of 2.4 yuan (tax included) to all shareholders; 24Q1 achieved revenue of 888 million yuan, an increase of 24.42% year on year, and net profit to mother of 56.2243 million yuan, an increase of 259.00% year on year. By product, snacks achieved revenue of 2,351 billion yuan (YoY +9.81%), gross margin of 25.39% (YoY +6.82pcts); canned revenue of 635 million yuan (YoY +5.76%), gross margin of 32.62% (YoY +6.21pcts); staple food revenue of 577 million yuan (YoY +60.23%), gross margin of 29.06% (YoY +8.61 pcts). 24Q1's net profit to mother increased year-on-year, and profitability improved significantly. Looking forward to the future, the company insists on building its own brand as the core, continuing to focus on the domestic market, while steadily advancing the global industrial chain layout and accelerating overseas market expansion. It is expected to enhance traditional OEM business, enhance the competitiveness of its own brand, and promote the company's performance improvement.
occurrences
The company disclosed the 2023 annual report and the 2024 quarterly report. In 2023, the company achieved operating income of 3,747 million yuan, a year-on-year increase of 15.37%, net profit of 233 million yuan, an increase of 120.12% over the previous year, and plans to distribute a cash dividend of 2.4 yuan (tax included) to all shareholders; 24Q1 achieved revenue of 888 million yuan, an increase of 24.42% year-on-year, and net profit of 56.2243 million yuan, a year-on-year increase of 259.00%.
Brief review
1. 24Q1's net profit increased year on year. Profitability increased significantly by product. In 2023, snacks achieved revenue of 2,351 billion yuan (+9.81% year over year), gross margin of 25.39% (+6.82pcts year over year); canned revenue of 635 million yuan (+5.76% year over year), gross margin of 32.62% (+6.21pcts year over year); staple food revenue of 577 million yuan (+60.23% year over year), gross margin of 29.06% (+8.61 pcts year over year); supplies and other revenue 100 million yuan (+25.72% YoY).
By sales model, in 2023, OEM achieved revenue of 2,158 billion yuan (YoY +14.39%), distribution revenue of 1,123 million yuan (+8.81% YoY), and direct sales revenue of 466 million yuan (+41.56% YoY).
By region, domestic revenue in 2023 was 1,086 billion yuan (+20.40% year over year), and the gross margin of the domestic pet food and supplies business was 31.28% (year-on-year +3.51 pcts). The increase in domestic business gross margin was mainly due to SKU streamlining, product price control and launch of high-margin products; overseas revenue was 2,662 billion yuan (+13.44% year over year), and the gross margin of the main overseas business was 25.22% (+7.97 pcts year over year), mainly under the premise of a stable export business, the company's overseas factory layout improved resilience to risks This is due to the combined effects of raw materials and exchange rates.
In terms of profit margin, the company's gross sales margin in 2023 was 26.28% (YoY +6.49pcts), net sales margin was 7.79% (YoY +4.07pcts); 24Q1 gross sales margin was 27.85% (YoY +3.49pcts), and the net sales margin was 7.41% (YoY +3.58pcts).
In terms of expenses, 24Q1's sales expenses were 91.3325 million yuan (+33.55% year over year), mainly due to increased business promotion and other expenses corresponding to business growth; management expenses were 447.887 million yuan (+23.79% year over year); financial expenses were 5.718 million yuan (-50.26% year over year), mainly due to a decrease in exchange losses in the current period; R&D expenses were 14.7895 million yuan (+17.03% year over year).
2. Steady growth of independent brands, introduction of new iterative brand upgrades, and the company focuses on building a free brand matrix. It is committed to amplifying the brand's market volume, comprehensively improving brand reputation, and driving the transformation of the company into a brand enterprise. On the channel side, the company launched a strategic cooperation with FanZhong Media. The two sides focused their marketing on core dry food products under the Playful Brand. Through scenario-based media communication, they stimulated the potential needs of urban pet owners, and achieved a total of nearly 200 million public exposures, injecting strong impetus into the market expansion of the dry food category. By brand, the Playful brand focuses on pet staple food, and has successively launched a variety of dry and wet food products, such as native energy dog staple food cans, raw bone and meat double food packs, and playful big full cans. At the snack track, Playful Full Score Cans, which combine freeze-dried and cat staple food, appeared at the Asian Pet Show. The product line of the ZEAL brand continues to be enriched. The No. 0 staple food can was renewed and upgraded. During the period of 2023, No. 0 staple food cans sold more than 80,000 cans in the Tmall flagship store, and ranked in the TOP2 of the Tmall Dog Canned Food List. During the “Double 11" promotion, No. 0 staple food cans jumped to the top 2 in the Tmall channel canned dog pre-sale list, and the channel sales exceeded 4 million. The leading brand of baked cat food became the top brand in the baked food Tmall industry; the staple food can was adjusted to the raw meat series to continue to expand new customers and strive to become the top 1 product in the domestic staple food tank; since 2023Q3, the staple food cat strip added the Xiaohongshu channel to grow plants, it has maintained the top 3 brands.
3. Order demand from overseas customers has recovered, and the international layout continues to expand. According to data from the General Administration of Customs, from January to January 2024, China exported 68,800 tons of pet food (dogs and cats), +24.36% year over year, with a cumulative export value of 2,189 billion yuan, or +23.00% year over year. By category, the cumulative export volume of retail packaged canned food (dogs and cats) in January-March was +3.23%, and the cumulative export value was +14.91% YoY; the cumulative export volume of other retail packaged foods (dogs and cats) in January-March was +27.60% YoY, and the cumulative export value was +23.45% YoY. Due to the low base due to the inventory adjustment of overseas customers in 23Q1, export volume and export value increased significantly in 24Q1. Currently, demand from overseas customers has recovered, and it is expected to maintain a growth rate range of 5% to 10% in the future. The company continues to expand its global layout. In June 2023, the company's own brands ZEAL and GREAT JACK'S officially entered 156 PetSmart stores in Canada, marking a new breakthrough in sales expansion for the company's own brands in the North American market. Currently, the company's own brands Naughty, ZEAL, GREAT JACK'S, etc. are sold to 61 countries and regions around the world, continuously speeding up the pace of “going global”.
4. Profit forecast and rating: 24Q1 The company's net profit increased year-on-year, and profitability improved significantly. Looking forward to the future, the company insists on building its own brand as the core, continues to focus on the domestic market, and at the same time steadily promotes the layout of the global industrial chain and accelerates overseas market expansion. It is expected to enhance traditional OEM business, enhance the competitiveness of its own brand, and promote the company's performance improvement. Based on comprehensive considerations, we adjusted our previous profit forecast. We expect the company to achieve operating income of 4.428/51.66/6.010 billion yuan, net profit to mother of 2.87/3.52/425 million yuan, EPS of 0.98/1.20/1.45 yuan respectively, and corresponding PE of 26.02x/21.23x/17.58x, respectively, maintaining an “gain” rating.
Risk analysis
① Risk of increased competition in overseas markets: Most of the company's revenue comes from overseas business. At the same time, overseas markets face competition from many pet food companies. Fluctuations in overseas markets and an unfavorable trade environment have a great impact on the company's performance. ② Risk of fluctuations in raw material prices: The main raw materials of the company's products are meat products such as chicken breast, duck breast, and skin rolls. Fluctuations in raw material prices affect the company's profit level to a certain extent. ③ Risk of rising labor costs: If labor costs rise rapidly, it may drive the price of the company's export products to rise, which is not conducive to the company's products competing in the international market. ④ Risk of exchange rate fluctuations:
Exchange rate fluctuations will affect the prices of the company's export products, affect the international competitiveness of the company's products, and at the same time generate exchange gains and losses, which in turn will affect the company's operating performance.