2023 and 1Q24 results are in line with market expectations
The company announced its 2023 and 1Q24 results. Revenue reached 99/250 million yuan, up 3.9%/30.7% year on year, and net profit to mother reached 13/40 million yuan, -20.5%/+72.5% year over year. The results were in line with market expectations. On a quarterly basis, 1Q/2Q/3Q/4Q23 revenue was -46.2%/+22.3%/+27.5%/+53.1% year-on-year, and net profit to mother was -63.7%/+1.9%/+6.5%/+7.6%, respectively.
Development trends
1. Under the influence of inventory removal, demand recovery and low base, 1Q24 revenue achieved rapid growth, and steady on-hand orders supported subsequent growth. The company's 1Q24 revenue also increased by 30.7%. As stocks from overseas furniture and pet snack channels declined and new product development improved, we expect the company's ongoing orders to be steady in 24 years, supporting subsequent growth. Looking specifically at revenue in '23, 1) revenue by business: revenue from pet traction tools/injection toys/snacks was -21.5% /flat/ +24%, respectively. Affected by the pace of terminal storage and product structure adjustments, pet products/food business operations rebounded for the better from 2Q/1Q23; 2) By region: Overseas/domestic revenue reached 88/ 110 million yuan respectively in 23 years, -3.6%/+189.8%. Their sales volume within China increased 42%/2680%, respectively. Ongoing development OK.
2. Product upgrades led to an increase in gross margin in core categories in '23, and exchange earnings increased 1Q24 performance.
In 2023/1Q24, the company's gross margin achieved 22.1%/22.5%, respectively, year-on-year. Among them, the gross margin of pet traction equipment/pet retail sales increased by 1.8 ppt/1.3 ppt in 23, and high-end product structure upgrades led to the optimization of the profitability of core categories. On the cost side, the 1Q24 sales/management/finance expense ratios were +0.9pp/ -0.5pp/ -4.8ppt, respectively. The depreciation of the RMB exchange rate against the US dollar brought exchange gains. Under the combined influence, 2023/1Q24 net profit margins were 12.7%/14.9%, respectively, -3.9pp/+3.6ppt year-on-year.
3. Focus on the improvement of pet products/snacks exports to drive subsequent order restoration, and the company has broad medium- to long-term growth space under capacity expansion and category expansion. In the short term, according to customs data, in 1Q24, China's export value of animal saddles and harness/pet food was -3.6%/+23%, respectively. As overseas channel inventory removal and demand continues to be strong, the company's subsequent on-hand orders are expected to continue to be abundant; in the medium to long term, the company cooperates steadily with leading overseas pet channel vendors, and the production capacity side company has built the domestic and foreign production capacity layout of Pingyang+Cambodia. Subsequent production capacity releases are expected to increase the company's own production ratio and achieve stable delivery of orders while achieving stable delivery of orders. Category side companies will continue to promote differentiated rubber bite improvement. Products and dogs Research and development of cat products opens up medium- to long-term growth space through category expansion.
Profit forecasting and valuation
The 24-year profit forecast remains unchanged. For the first time, a 25-year net profit forecast of 190 million yuan was introduced. The current stock price corresponds to 15/13 times P/E for 24/25. Keep the outperforming industry rating and target price of 18 yuan unchanged, corresponding to 21/18 times P/E in 24/25, with 37% upside compared to the current stock price.
risks
Rising raw material prices, risk of additional tariffs, risk of loss of core customers, risk of exchange rate fluctuations.