1H23 performance is in line with market expectations

The company announced 1H23 results: 1H23 achieved total operating income of 125 billion yuan, +4.7% year on year; realized net profit of 60 billion yuan, +25% year on year. Excluding one-time investment income, we estimate that non-net profit increased by about 10% after deducting one-time investment income; 1H23 adjusted EBITDA was 1.66 billion yuan, +11.8% year on year.

The 1H23 results are in line with market expectations.

Development trends

1H23 sales continued to grow steadily, and juice continued to perform well. 1H23's revenue was +4.7% year on year, continuing the trend since 2022. Among them, sales volume increased 5.5% year on year, and ASP was under slight pressure. Mainly due to the company's adjustment of fee discount methods, reporting ASP and sales expenses fell, and ASP increased slightly year on year at a comparable scale. By category, 1) Soda: 1H23's revenue was +3% year-on-year to 9.31 billion yuan, with a slight decline from 2H22. Sales volume under management reports increased 4% year on year, and sales volume was relatively stable, demonstrating the company's competitive advantage; 2) Juice: 1H23's revenue was +16.6%, continuing the previous strong growth trend, mainly due to the increase in the overall prosperity of the juice category and the return of the juice source to the 450ml classic bottle type; 3) Packaged water: 1H23's revenue increased +5.1% year-on-year, growth rate increased by +5.1%, month-on-month Mainly due to the recovery of the outdoor consumption scene and the company's increase in ice and dew Factory price. 1H23 further increased the number of service terminals from 2.65 million to 2.8 million, demonstrating that the company continues to promote channel cultivation.

At 1H23's comparable caliber, gross margin was basically stable, and improved sales rates increased profitability. 1H23's gross margin was -0.8ppt year on year, mainly due to adjustments in accounting standards and slight cost pressure. We expect the cost side to affect gross margin by about 0.2ppt. The main cause is a year-on-year increase in fructose prices and a slight increase in PET prices.

The 1H23 sales rate was -1.3ppt year-on-year, driving the company's gross sales gap to expand by 0.5ppt and driving an increase in core profit.

2H23 sales may continue to grow steadily, and profitability may be expected to improve slightly. Our grassroots research shows that in July-August, the company's sales performance slowed down compared to the first half of the year. Considering the arrival of consumption during the Mid-Autumn Festival and National Day peak season and the gradual recovery in consumption, we expect 2H23's sales may continue to grow steadily, and juice is expected to continue to grow well under the impetus of new products. On the cost side, we expect 2H23 raw material prices to be basically stable or under slight pressure; considering product price increases and cost rates continue to improve, we expect the company's profitability to improve slightly year-on-year.

Profit forecasting and valuation

Considering the improvement in gross sales margin due to one-time investment income and rate optimization, the 23/24 profit forecast was raised by 9.6%/5.5% to $807/841 million. The company's transaction was 8.6/8.0 times P/E for 2023/24; the target price was maintained at HK$3.8, corresponding to 11.8/11.0 times P/E in 2023/24 and the upward space of 37.2% in the stock price, maintaining the outperforming industry rating.

risks

Raw material prices continue to be high, competition is intensifying, and demand is weak.