Net profit after tax is forecast to drop by 18-22%
The company released the 2023 performance forecast. Revenue fell 11-15% year on year, net profit after tax fell 18-22% year on year, and the performance was slightly lower than our expectations.
Key points of interest
We expect the company's business to pick up in the Hong Kong market throughout 2023. In the first half of 2023, the company's Hong Kong market revenue was HK$439 million, up 41.6% year over year, mainly due to the recovery of passenger traffic in the Hong Kong market and the company's active promotion of retail pharmacy business in Hong Kong. We expect the company's business in the Hong Kong market to maintain a healthy development trend throughout 2023.
We expect Ganoderma lucidum spore powder to be in an adjustment period in 2023, and growth is expected to resume by 2024.
In the first half of 2023, the company's revenue in the mainland China market was HK$108 million, an increase of 55.0% year-on-year, mainly due to the company's new Chinese herbal medicine business, etc. According to the company's announcement, some of the company's distributors in mainland China are still digesting the company's self-produced product inventory in 2023. We expect this to affect the company's sales revenue of Ganoderma lucidum spore powder in mainland China. According to the company's announcement, the company's management has resolutely taken a number of countermeasures, including measures to strengthen sales channel construction and marketing promotion.
We expect the company to resume good business in markets such as Macau, China in 2023. In the first half of 2023, the company's overseas market revenue (including Macau, China, excluding Hong Kong, China) was HK$266 million, an increase of 7.7% over the previous year. According to the company's announcement, as of June 2023, the company has opened 5 stores in Macau, with a total of 75 stores in overseas markets.
Profit forecasting and valuation
Considering that the company's Ganoderma lucidum spore powder is in the channel adjustment period, we lowered the 2023/2024 EPS forecast by 29.4%/23.0% to HK$0.62/HK$0.78, an increase of -19.0%/25.6% over the previous year. We introduced an EPS forecast of HK$0.88 for 2025, an increase of 12.0% year over year. We simultaneously lowered our target price by 21.2% to HK$12.85, corresponding to a price-earnings ratio of 16.3 times/14.6 times in 2024/2025. The current stock price corresponds to the 2024/2025 price-earnings ratio of 12.0 times/10.7 times, and the target price has room to rise 36.0% from the current stock price.
risks
Demand in Hong Kong and the Mainland declined, and sales management expenses increased.