Incident: The company released its 2024 mid-year report, and 24H1 achieved revenue of 22.17 billion yuan, +8.4% year over year; net profit to mother of 6.24 billion yuan, +8.0% year over year.
Packaged water has been pressured by public attacks, and tea drinking has benefited from the sugar-free trend to maintain a high rise. By category, packaged water, tea drinks, energy drinks, juice drinks, and other products achieved sales revenue of 8.53 billion yuan (-18.3%), 8.43 billion yuan (+59.5%), 2.55 billion yuan (+3.8%), 2.11 billion yuan (+25.4%), and 0.55 billion yuan (-7.2%), respectively, accounting for 38.5%/38.0%/11.5%/2.5% of total revenue. Among them, the large decline in packaged water was mainly due to numerous public opinion attacks and malicious slander against the company and founders on the Internet at the end of February, which affected brand sales. The two major single products of tea drinks, Oriental Leaf and Tea Pi, were rapidly released under the trend of health and low sugar. The second curve was gradually consolidated, and new flavors and specifications of Oriental leaves were developed and marketed. On the one hand, energy drinks introduced exciting new flavors to inject vitality into the brand, and on the other hand, Powerhouse Vitamin Water went deep into the trendy community to carry out joint outdoor and street dance activities. Farmer's Orchard in fruit juice drinks completed the upgrade and return of the classic product 100% pure juice, updated and iterated all aspects of the formula, ingredients, and process, and the water-soluble C100 continued to expand the product flavor matrix. The growth rate of other products has slowed down under the strategy of focusing on operating efficiency and focusing on key items, but the company has maintained a relatively rapid pace of promotion of new products.
Gross profit is pressured by the compounding cost of new product promotion, and cost rate improvements have been effective. 1. The gross profit margin of 24H1 is 58.8%, compared to -1.4pp, mainly due to the launch and promotion of new pure aquatic products, increased fixed cost sharing due to declining sales of packaged aquatic products, and rising prices of raw materials for juice. 2. 24H1 sales/management were 22.4%/4.1%, respectively, -0.5/-0.6pp year-on-year. The company's advertising and promotion expenses have increased compared to the same period last year, but logistics rates have declined due to the product structure, which together led to a decrease in sales expenses. The company continues to improve management efficiency, and the management expense ratio continues to be optimized. 3. The net profit margin was 28.1%, -0.1pp year on year. The decline in gross margin mainly affected net profit, but the company's net profit margin was still higher than that of peers for a long time, driving the company to achieve high-quality growth.
Green bottle of pure water enhances the overall competitiveness of the packaged water sector. Other categories have blossomed more and are supported by medium- to long-term high-quality growth. The company launched purified drinking water packaged in green bottles in April. It uses high-quality natural water sources as raw water, insists that the water source is built in a factory, the water source is canned, and has a natural sweetness. On the one hand, the launch of green bottle of pure water complements the product line other than red bottle of natural water, giving consumers more choices; on the other hand, it also helps the company to have a more flexible market strategy mix in terms of display and pricing of packaged water, further enhancing the company's overall competitiveness in the field of packaged water. In addition, the company's product matrix is based on natural health, and is expected to enjoy the dividends of the health trend. Introductory products such as milk tea, charcoal, coffee, and vegetable yogurt all have certain volume potential, and I am optimistic that the company will continue to expand with keen consumer insight and strong channel power.
Profit forecasting and investment advice. The estimated net profit for 2024-2026 is 13.56 billion yuan, 16.28 billion yuan, and 18.95 billion yuan, respectively, and EPS is 1.21 yuan, 1.45 yuan, and 1.68 yuan, respectively. PE was given 26 times in 2024, corresponding to HK$34.2 according to the 0.92:1 exchange rate, maintaining the “buy” rating.
Risk warning: Risks such as low demand for terminals, falling short of expectations for new products, and large fluctuations in raw material prices.