The company announced its 2023 annual report and 2024 quarterly report, and the 24Q1 results exceeded expectations. In 2023, revenue of 13.843 billion yuan was achieved, -1.6% year on year; net profit to mother was 775 million yuan, +37.1% year over year; net profit after deducting non-return to mother was 7.46 yuan, +62.3% year over year. 2023Q4's revenue in a single quarter was $3.136 billion, -2.1% year on year; net profit to mother was 68 million yuan, +214.0% year on year, net profit without return to mother was 65 million yuan, +215.1% year on year. Revenue and profit for 2023 are largely in line with expectations. 2024Q1's quarterly revenue was 3.551 billion yuan, +6.0% year on year; net profit to mother was 279 million yuan, +32.7% year on year, net profit of non-return to mother was 265 million yuan, +28.4% year on year. 24Q1 revenue was in line with expectations, and profit exceeded expectations.
Raw material prices are declining, and profit flexibility continues to be released, driving up gross margin. In 2023, the company's comprehensive gross profit margin was 15.2%, the year-on-year +3.4pct; 24Q1 company's gross profit margin was 18.3%, and the year-on-year gross profit margin was +3.4pct. The increase in gross margin since 2023 is mainly due to an increase in Red Bull sales and a decrease in raw material costs. In 2023, the price of tinplate (tinned plate coil) was -10.6%, the price of LME aluminum was -15.8%; the price of tinplate (tinned plate coil) was -4.0%, and the price of LME aluminum was -7.9% year-on-year.
Investment in new business increased, and the cost rate increased during the period. The company's expense ratio for the 2023 period was 8.0%, +0.4pct. Sales, management, R&D, and finance expenses were 1.7%/4.1%/0.3%/1.9%, respectively, +0.3/+0.2/+0.0/ -0.1pct.
The 24Q1 company's expense ratio was 7.7%, +0.5pct year on year, sales, management, R&D, and finance expenses were 1.4%/4.3%/0.4%/1.6%, respectively, and +0.4/+0.6/+0.1/-0.6pct year on year, achieving a net profit margin of 7.9% to mother, +1.6 pct year over year. The increase in sales and management expenses is mainly due to the expansion of own brands and the development of the new energy battery case business, and the increase in expenses for marketing and team formation. In 2023, the company achieved a net profit margin of 5.6%, +1.6pct year-on-year.
The short-term issuance of convertible bonds was invested to build a two-piece tank production capacity, and the long-term two-chip can profit improvement logic is being implemented. The company continues to promote production capacity construction. It plans to raise 940 million yuan (after deducting financial investment factors) by issuing convertible bonds to unspecified targets, build the Zaozhuang 1.6 billion cans supporting project (900 million in the first phase) and the Foshan Shuidu relocation project to improve the production capacity layout in South China.
We expect that from a medium- to long-term perspective, the profitability of the company's two-piece tank business will continue to improve, mainly due to: 1) the improved competitive landscape, continuous mergers and acquisitions in the industry, a high threshold for new entrants, and a continuous increase in the concentration and voice of leading companies in the industry chain.
Aluminum prices were high in 2021 and 2022. Leading companies in the two-piece can industry conducted cost pressure in a relatively timely manner through high-frequency price increases or a rolling quotation mechanism to verify the optimization of the industry pattern. 2) The canning rate of beer has increased, and brewers have frequently introduced differentiated tank types with higher gross margins. Two-piece cans have become an important carrier for upgrading the downstream consumption structure, and canning companies have enjoyed both an increase in sales volume and single-can profit. 3) The production line layout is becoming more and more reasonable. The company fully exploits effective production capacity through layout adjustments, equipment relocation, etc. without increasing equipment procurement. 4) The company adopts a symbiotic and close production layout to continue to deepen cooperation with core customers to further reduce transportation and logistics costs.
Metal packaging technology is applied to new energy precision battery structural parts to open up a second growth curve. The company cooperated with Beijing Weilan New Energy to establish Lanpeng Ruizhi to invest in the construction of a new energy precision battery structural parts project in Zaozhuang City, Shandong, to support two automated production lines. The products are mainly square battery structural parts and cylindrical battery structural parts, which are mainly used for energy storage batteries and NEV power batteries. The company applies metal packaging technology to precision battery structural parts, and relies on long-term technical accumulation to introduce new processes to carry out technological innovation to effectively improve battery case production efficiency, reduce manual usage rate, and ensure high precision and quality stability of products. Crossing borders into the field of battery structural components, the company has core competitiveness: ① process similarity, the production technology of square three-piece food cans and square battery cases; the company has long-term experience in achieving indicators such as shell material thinning, corrosion protection and strength control; ② large-scale ability to effectively control costs through raw material procurement and large-scale production capabilities; ③ R&D innovation tradition, the battery industry has a high degree of non-standard, and the company has strong innovation genes. It has outstanding ability in fine process treatment (such as edges, joints, etc.) to build competitive barriers. With its core competitiveness in production and R&D, the company is expected to continue to expand new energy battery structural components projects and form a second growth curve.
Extend the industrial chain and accelerate the layout of private brands. Focusing on the strategic direction of “packaging +” and based on the concept of big consumption and big health, the company continues to launch its own brand of beverages and prepared food products, such as the “Yuan Yang Story” series of drinks and “Xiwang” sports nutritional drinks, which are promoted and sold simultaneously online and offline. The company is vigorously promoting the application of coated iron and coated aluminum technology in prepared food products, which are more environmentally friendly, safe and healthy. Show technical capabilities by promoting independent products and continue to explore large-scale paths.
The company continues to develop independently and upgrade to a comprehensive packaging solution provider; extends the downstream industrial chain, crosses borders for new energy precision battery components, and seeks a second growth curve with a “packaging+” strategy. In the short term, the decline in raw material costs has led to profit flexibility. In the long run, focus on price increases brought about by the improvement in the two-piece tank pattern, the restoration of industry profit margins, and the increase in bargaining power in the industrial chain. Considering that it will take time for downstream metal packaging demand to recover, the company's net profit forecast for 2024-2025 was lowered to 885/1,003 million yuan (the original profit forecast was 10.24/1,212 billion yuan), and the 2026 net profit forecast was added to the 2026 net profit forecast of 1,112 million yuan. Net profit to mother in 2024-2026 was +14.2%/+13.4%/+10.9% year-on-year, and the corresponding PE was 14X/12X/11X. Considering: 1) the company's average PE TTM in the past five years was 24X; 2) there is a lot of room for improvement in profit levels after improving the industry pattern, and the purchase rating is maintained.
Risk warning: Trademark disputes with major customers have not yet been settled, and raw material prices have fluctuated.