Incident: Nongfu Spring released its 2023 annual report, achieving operating income of 42.67 billion yuan in 23, +28.4% year-on-year; net profit to mother of 12.08 billion yuan, +42.2% year-on-year. Among them, 23H2 achieved operating income of 22.2 billion yuan, +33.4% year-on-year; net profit to mother was 6.3 billion yuan, +62.2% year-on-year.
Revenue from tea drinks continued to rise high, and revenue from packaged water increased steadily.
23H2's revenue was +33.4% YoY, up from 23H1. By category, the packaged drinking water business achieved revenue of 20.062 billion yuan in 23 years, yoy +10.9%, and maintained steady growth. In the beverage business, tea and beverage revenue continued to rise, achieving revenue of 12.659 billion yuan, yoy +83.3% in 23, mainly due to the continuous release of large single products [Oriental Leaf] under the unsweetened consumption trend; energy drinks achieved revenue of 4.902 billion yuan, yoy +27.7% in 23 years, mainly due to the recovery of consumer outdoor sports scenes and increased product demand after the epidemic; juice drinks achieved revenue of 3,533 billion yuan, yoy +22.7% in 23; other products, including soda and coffee drinks, achieved revenue of 1,311 billion yuan in 23 years. YOY -3.1% In '23, the revenue share of tea drinks increased by 8.9pcts to 29.7%, and packaged water/energy drinks/juice drinks/other products accounted for 47.5%/11.5%/8.3%/3.0%, respectively.
Cost pressure is relieved, cost investment efficiency is optimized, and profitability continues to improve.
The company's gross margin in '23 was 59.5%, yoy+2.1pcts, mainly due to the year-on-year decline in the purchase prices of cartons, labels and some raw materials. In 24 years, the company will continue to track changes in raw material prices and lock in price in due course. The 24H1 gross margin is expected to be relatively stable year-on-year. The 23-year sales expense rate was 21.8%, yoy-1.7pcts, mainly due to supply chain cost optimization. As factories close to water sources continue to be built and put into operation, optimization of warehousing and logistics costs reduced the proportion of distribution expenses. The 23-year management expense rate was 5.1%, yoy-0.5pcts, mainly due to the scale effect of revenue growth diluting management expenses. Other income and earnings increased 7.7% year over year in '23, mainly due to increased interest income from time deposits. Taken together, the company's net profit margin to mother in '23 was 28.3%, yoy+2.8pcts.
Tea drinks maintain outstanding performance, and I am optimistic about the long-term performance of Oriental leaves.
By sector, the company's tea and beverage sector performed well in 2023. Revenue increased 83.3% year-on-year, and the distribution rate and number of covered outlets increased rapidly. [Oriental Leaves] Entered the marketing period with the clear trend of healthy sugar-free tea. [Oriental Leaves] The product matrix continues to be rich. The 900ml large bottle was launched in February '23, and the black oolong flavor was launched in May '23. The company's strong R&D and innovation capabilities helped it continue to consolidate its leading position in the tea beverage industry. [Oriental Leaves] There is still a gap between network coverage and leading brands, and there is room for further improvement in the future. In terms of packaged water, 23H2 upgraded the 4L “handle bottle” containing natural aquatic products, deepened its kitchen water positioning, and further broadened the usage scenarios.
Sales performance since the beginning of '24 has basically met the company's expectations. The March public opinion incident disrupted online product sales to a certain extent and had little impact on traditional channels. The company mainly focuses on offline channels, and the overall impact is expected to be limited. Looking at the whole year, the further recovery of the outdoor consumption scenario is conducive to the growth of the company's performance.
Profit forecast, valuation and ratings: Considering that tea drinks, in particular [Oriental Leaf], are growing rapidly and the sugar-free tea industry is still expanding rapidly, we raised the net profit forecast for Nongfu Spring 2024-2025 to 129.23/14.536 billion yuan (+7%/+5%, respectively), and introduced the 2026 net profit forecast to the mother to 16.224 billion yuan. The current stock price for 2024-2026 PE is 33x/29x/26x, respectively. As a leading high-quality beverage company, the company has a deep moat, and we are optimistic about the company's long-term development potential. Maintain an “Overweight” rating.
Risk warning: Market competition exceeds expectations; channel control weakens; raw material costs rise.