Zhongjin expects the trend of profit margin improvement in the second half to continue. It is expected that the non-net profit of U-Presid China (00220) for the whole year will achieve a high-speed growth of more than 30%.
According to the Zhongjin research report, U-Presid China (00220) is rated as "outperform the industry", with a target price of HKD 8.6. The company's 1H24 results were announced: revenue of 15.4 billion yuan, +6% year-on-year, net income attributable to shareholders of 0.966 billion yuan, +10.2% year-on-year, and non-net profit of 0.966 billion yuan, +56% year-on-year (last year's same period had a one-time after-tax income of 0.256 billion yuan). Among them, the net profit attributable to shareholders in 2Q24 was 0.51 billion yuan, a year-on-year increase of 31%, and non-net profit was 0.51 billion yuan, a year-on-year increase of 31%. The performance is in line with the bank's expectations, slightly higher than the market's expectations. The main reason is that the 2Q gross margin improvement trend continues to be good.
CICC's main points are as follows:
In 1H24, the beverage sector continued its good growth momentum, and the instant noodle sector performed steadily.
The company's beverage revenue in 2Q24 achieved stable growth, with a slight slowdown from double-digit growth in 1Q, mainly due to the impact of rainy weather in some areas in June. However, overall, beverage revenue in 1H24 increased by 8.3%, which performed well. By product category, tea and juice revenue in 1H24 increased by 11.8% and 8.2% respectively, continuing the previous good growth momentum. Among them, Haizhiyan's revenue achieved double-digit growth year-on-year, and Chunfenglu tea has performed well since April. The bank predicts that its revenue contribution in the first half of the year is about 0.1-0.2 billion yuan. Milk tea revenue in 1H24 increased by 3.3%, with steady growth. The company's food revenue in 1H24 increased by 0.9%, of which instant noodle revenue increased by 1.9%, which performed steadily. Among them, Qiehuang and Laotan pickled vegetables both achieved double-digit growth, while Tangdaren declined slightly. Currently, Tangdaren's upgraded products are still being rolled out, and its performance in the second half of the year is worth observing. Overall, the company's 1H24 revenue increased by 6%, performing steadily compared to other food and beverage sector, particularly revealing the demand resilience of the beverage sector.
The improvement in profit margin in 2Q24 was achieved as planned, driving the continued good growth rate of non-IFRS net income.
The company's gross profit margin in 1H24 increased by 2.7ppt year-on-year to 33.8%. By category, instant noodle and beverage gross margin increased by +2.5ppt/+2.7ppt year-on-year respectively, mainly due to cost reductions, capacity utilization improvements and fewer promotions. On the cost side, the company's sales expense ratio remained basically flat year-on-year in 1H24, and the expense investment was in line with the company's expectations; the management expense ratio was slightly optimized due to the transformation of some regions from direct-operated mode to distribution. Benefiting from the improvement of the gross profit margin, the non-net profit in 2Q increased by 31% year-on-year, continuing the good trend.
The beverage sector is expected to continue its good trend in 2H24, with the trend of improving profit margins continuing.
The bank's grassroots research shows that the company's beverage achieved steady growth in July, and the growth momentum has improved since early August. Instant noodle sales remained stable year-on-year. Considering: 1) Competitors raising food prices may benefit in the short term; 2) The weather improved gradually in July; 3) The Spring Festival in 2025 is earlier for stocking in advance. The bank predicts that the company's revenue in 2H24 is expected to continue the trend of revenue growth in the first half of the year. In terms of profits, benefiting from the decline in white sugar and corrugated paper prices, the continuous improvement of capacity utilization rate, the continuous optimization of product structure, and the competitors' continuous reduction in promotion space by raising prices, the bank predicts that the trend of profit margin improvement in 2H is expected to continue, and the company's non-net profit is expected to achieve high-speed growth of more than 30% for the whole year.
Risk
The demand recovery is not as good as expected, and raw material prices are fluctuating.
