Matters:
The company released its 2024 quarterly report. In 2024, Q1 achieved total operating income of US$1,643 million, apparent to endogenous ratio of -3.5%/-0.4%; normalized EBITDA of US$572 million, epitemic/endogenous YoY of -1.4%/+4.2%; and net profit from normalization of US$297 million, apparent YoY of -1.0%.
Commentary:
Western Asia Pacific: Sales are under pressure from a high base in China, but tonnage prices have maintained a relatively rapid growth rate, and India continues to increase.
Q1 Sales in China fell 4.9% due to the high base due to the optimization of epidemic control during the same period, unfavorable weather and falling demand in March; however, high-end technology continued to advance, and P&SP's share of sales increased by 2.5%, driving an endogenous 3.6% increase in tonnage prices. The initial redemption of the combined cost dividend and fee investment were basically stable, and the eBITDA profit margin in China also increased by 1.45 pcts endogenously. India continued to outperform its peers, maintaining double-digit growth in sales, revenue, and P&SP revenue. Overall, 24Q1 sales volume/tonnage price/EBITDA in western Asia Pacific was -4.9%/+3.6%/+2.0%, respectively.
Eastern Asia Pacific: The implementation of price increases led to a high increase in tonnage prices, and the EBITDA rate increased markedly. Looking at volume and price splitting, although affected by the high base of the same period last year (sales volume was about +10%), 24Q1 sales volume fell 4.0%, but the market share increased; at the same time, benefiting from the 9.1% price increase in high-end home drinks in April 23 and the 6.9% price increase for core Korean products in October, tonnage prices in the eastern Asia-Pacific region also increased by 9.6%, driving the increase in revenue orders. In terms of profit, although there was an increase in commercial investment from a low base (starting in 23Q2, increased investment in the face of increased competition), price increases and cost dividends dominated the Asia-Pacific region's normalized EBITDA rate, which increased by 3.34 pcts over the same period last year, and normalized EBITDA also increased by 18.7%.
The upgrade trend remains unchanged, costs and price increase dividends are beginning to be realized, and the revenue side is expected to gradually accelerate. Overall, the performance was under pressure under pressure under the high sales base in 24Q1, but the steady progress of the upgrade between China and India and the implementation of price increases in South Korea led to an endogenous 4.6% increase in tonnage prices. At the same time, low-cost raw materials were initially realized, with an endogenous increase of 0.4% in tonnage costs, which narrowed markedly from month to month. As a result, gross margin increased by 2.1 pcts to 51.5%, and the share of combined sales, general and administrative expenses in revenue apparently increased slightly by 0.8 pcts to 28.2%, and eventually normalized the EBITDA profit margin endogenously increased +1.5 pcts to 34.8%. Looking ahead to the 24-year pace, the sales growth rate is expected to gradually improve as the base figure declines and the competitiveness of the Korean region recovers due to continued commercial investment. At the same time, high-end technology continues to push down compounding costs and further realize the dividends of price increases in South Korea, and the company's profit is expected to continue to increase significantly.
Investment advice: Cost and price increase dividends are realized, sales improvements can be expected, and the “recommended” rating is maintained. The 24Q1 cost and price increase dividends have begun to be realized, driving profitability to grow in the face of declining sales volume. It is expected that subsequent improvements in sales side growth can be expected, and profit increases are expected to continue. Considering that poor sales volume in Q1 caused a certain drag on revenue performance, the 24-26 net profit forecast was slightly adjusted to US$10.3/11.7/1.29 billion (the original forecast was US$10.7/12.2/US$1.35 billion), corresponding to PE 18/16/15 times, and the target price was HK$15.5, corresponding to 24E PE about 25X, maintaining the “recommended” rating.
Risk warning: Competition in the industry has intensified, costs have risen sharply, and the recovery in consumption falls short of expectations.