The company released the 2023 annual report and the 2024 quarterly report: the company's total revenue in 2023 was 126.18 billion yuan, +2.4% year over year; net profit to mother was 10.43 billion yuan, +10.6% year over year; net profit without return to mother was 10.03 billion yuan, +16.8% year over year.
2024Q1's total revenue was 32.58 billion yuan, -2.6% year on year; net profit to mother was 5.923 billion yuan, +63.8% year on year; net profit without return to mother was 3.73 billion yuan, +7.97% year on year. Revenue fell short of expectations and profit was in line with expectations.
The off-season inventory caused 24Q1 liquid milk to weaken, and the product structure continued to upgrade. Liquid milk revenue was +0.7%/-6.8% year-on-year in 2023/2024Q1, respectively. We expect the 2023 annuity pension revenue to grow at a faster rate than basic white, and Anmu Xi will be weak. The weakness of 24Q1 liquid milk is expected to be mainly due to the large number of products after the Spring Festival. It is expected that 24Q1 white milk will perform better than yogurt, Jin Dian will be better than basic white, and the product structure will continue to upgrade.
23-year adult powder is stable, and infant formula is pressure-resistant. In 2023/2024Q1, the company's revenue from milk powder and dairy products was +5.1%/-0.2%, respectively. We expect a double-digit year-on-year increase in adult powder in '23; due to the decline in birth population+channel adjustments, the main brand infant formula's performance was relatively weak in '23 and 24Q1. In the future, as the number of births rebounds and the elimination of small brands in the industry comes to an end, the company's infant formula is expected to return to a growth trajectory.
Cost dividends drive improvements in gross margin, and gross sales margins continue to be optimized. In 2023/2024Q1, the company's gross margin was +0.3/+2 pct, respectively. The gross margin increase is expected to drive the improvement in liquid milk's gross margin. The gross margin for liquid milk/milk powder and dairy products/cold drinks was +1.25/ -2.92/-0.03pct year on year, respectively. Among them, liquid milk sales/ton price/ton cost were +2%/-1.4%/-3%, respectively. The company's sales expense ratio in '23/24Q1 was -0.7/+1.4pct year on year. In 2023, the company actively controlled fees, and the increase in the 24Q1 sales expense ratio is expected to increase mainly due to increased investment in channel adjustments. Taken together, the gross sales gap of the company in '23/24Q1 was +1.04/+0.6pct, respectively, and the gross sales margin improved significantly.
Net interest rates rose more than expected in '23, and the sale of coal assets increased profits in 24Q1. Asset impairment losses of 1.53 billion yuan were recorded in 23 years, of which biological asset impairment due to a drop in the market price of dairy cows due to falling milk prices was calculated at 234 million yuan, and inventory impairment such as dabao powder was calculated at 1.22 billion yuan. The increase in asset impairment losses did not change the upward trend in the company's net interest rate. In '23, the company's net interest rate/net interest rate after deduction of non-return to mother was +0.6/+1pct, respectively, compared with each other, and the increase in net interest rate exceeded expectations. The 24Q1 company achieved a net investment income of 2.58 billion yuan, which is expected to be mainly due to the sale of coal assets by 24Q1. Net investment income increased + gross margin improved. 24Q1 company's net interest rate/net interest rate of non-return to mother was +7.4/+1.1 pct year-on-year.
Increased dividend rate+cancellation of repurchases to continuously improve shareholder returns. In 2024, the company plans to have a total revenue of 130 billion yuan, +3% year-on-year, and a total profit of 14.7 billion yuan, +25.4% year-on-year. The operating guidelines are clear. The 2023 Annual Report announced a cash dividend of 7.64 billion yuan, increasing the dividend rate to 73%. At the same time, the company announced that it plans to use its own funds to repurchase 1-2 billion yuan (accounting for 0.38%-0.75% of the total share capital on the announcement date) for cancellation. Based on the 23 year net profit and dividend rate of 73%, the stock price on April 30, 2024 corresponds to a dividend rate of 4.2%. Shareholder returns are expected to continue to increase in the future as repurchases are gradually implemented.
Profit forecast and investment rating: The company's revenue in 23 and 24Q1 was weak but profit was in line with expectations. The company's 24-26 revenue forecast was lowered to 1303/1366/143.1 billion yuan (the previous 24-25 forecast was 1390/15.2 billion yuan), +3.23%/+4.75% year over year, adjusted net profit forecast for 24-26 to 131/122/13.5 billion yuan (previously 24-25 forecast was $119/13.6 billion), +25%/-6.5%/+11% year-on-year. The corresponding 24-26 PE was 14/15/13x, respectively, maintaining a “buy” rating.
Risk warning: sharp rise in raw material prices, increased industry competition, falling short of expectations, food safety issues