Key points of investment
Performance summary: Continuing the high upward trend, revenue/profit ratio +47%/34% year-on-year: revenue of 15.08 billion yuan (+46.7%), net profit of 1.45 billion yuan (+33.5% compared to adjusted profit of the previous year). The adjustments from the previous year were mainly changes in the book value of liabilities confirmed in respect of priority granted to investors of 800 million yuan (this priority was terminated after September 21).
22H2: Revenue of $7.93 billion (+63.0%), net profit of $6.0 billion (+22.8%).
Revenue split: The epidemic affected the decline in the share of core categories, and the branding rate remained high at 70% + according to core/others: core fruit revenue was 6.76 billion yuan (+14%), accounting for 45% of revenue, a decrease of 12.7 pp; revenue from non-core fruit was 8.32 billion yuan (+90%).
The share of core fruit declined in '22, mainly due to the impact of the epidemic on the progress of international logistics and customs clearance, and the decline in the company's imports of the company's six core categories. According to data from the General Administration of Customs, China's cumulative imports of durian, dragon fruit, and grapes for the full year of '22 were -4%/-3%/-1%. At the same time, the company's durian/dragon fruit/grape revenue was 39.7/83/71 billion yuan respectively, compared to +14%/-2%/+42%. The supply chain advantage is prominent, and the future market share elasticity is impressive.
Furthermore, the strong growth of non-core fruit in '22 also further confirms that the company's position in the industry is stable and that the category operation model is replicable. Along with the optimization of epidemic prevention and control, the import volume of the six core categories has steadily rebounded, and it is expected that they will still contribute the main revenue in the future.
By brand/others: Branded fruit revenue was 10.75 billion yuan (+43%), accounting for 71%, a slight decrease of 2.0pp; revenue from unbranded fruit was 4.33 billion yuan (+57%).
Profitability: Net profit margin increased and cost optimization, receivables were slightly pressured on net interest rate of 17.1% (+1.4pp) in '22, where core/other fruit gross profit margin was 21.0% (+3.5pp)/13.9% (+0.7pp); brand/other fruit gross profit margin 18.3% (+1.6pp)/14.0% (+1.0pp). The company selected high-quality fruit products and successfully built 18 brands. In '22, it benefited from rising prices of durian, dragon fruit, etc. and cancellation of marketing concessions. Gross margin increased significantly, and the high-end process progressed smoothly.
The annual net interest rate was 9.6% (-1.0pp), and the sales/management expenses ratio was 1.3%/1.3%, respectively, and -0.5pp/0.3 pp compared to the previous year. The decline in net interest rates was mainly due to an increase in impairment losses of accounts receivable by 480 million yuan. It is expected that with the stabilization of the business environment for downstream customers, the company's sales repayment progress is expected to accelerate, and profitability will be significantly optimized.
Continued optimism: The flywheel effect of the end-to-end model is obvious. Successful category experiences are expected to replicate the trillion-dollar fruit distribution market. Long chains+low digitalization have created characteristics of high losses and low profits, and there is plenty of room for industrial chain integration. The company lays out high-quality production sites, opens up all channels, and the logic for increasing market share in the future is clear.
Procurement: Increase upstream direct procurement, and the development of new categories continues to advance. The company's durian imports accounted for 12.7% of China Customs's imports to Thailand in '22, compared to +2.6pp in '21. According to data from the General Administration of Customs, in January-January '23, China's durian imports were +61% year-on-year. The demand side grew strongly. The company also expanded Vietnamese durians, which can complement the season with Thai durians, and undertook a strong market boom dividend. Furthermore, the company's imported dragon fruit/longan accounted for 17.1% of China Customs's dragon fruit imports to Vietnam /13.4% of longan imports to Thailand. The scale effect is already beginning to show, and the variety development potential is abundant.
Distribution: B-side and C-side go hand in hand, and channel providers advance into brands. In '22, the company set up 4 new sales companies in Harbin, Nanjing, Zhengzhou and Baoding. Currently, it has covered more than 300 cities. The market network has been steadily expanding, strengthening the reach of end customers. New retail channels continue to gain strength and strengthen brand exposure, which is expected to drive the company's expansion from channel providers to brands.
Profit forecasting and valuation
As the first listed stock of fruit, the company vertically integrates the supply chain from top to bottom, accelerates growth in the end-to-end model, accelerates growth, and digitalization empowers efficiency improvements. It is full of potential worth paying attention to. The company's net profit from 23 to 25 is estimated to be 21.7/31.2/4.28 billion yuan respectively, compared to +49%/44%/37%. The current market value corresponding to PE is 18/12/9X, maintaining the “buy” rating.
Risk warning
Brand promotion fell short of expectations; fruit prices fluctuated due to extreme weather, natural disasters, etc.; and the collection of trade receivables fell short of expectations.