3Q23 performance is lower than we expected.
The company announced the results for the first three quarters: income 2.08 billion yuan, year-on-year + 12.5%, return net profit 143 million yuan, year-on-year-7.44%, deducting non-return net profit 144 million yuan, year-on-year + 3.92%; corresponding 3Q23 income 694 million yuan, year-on-year + 12.25%, return net profit 17 million yuan, year-on-year-63.71%, deducting non-return net profit 27 million yuan, year-on-year-35.52%. 3Q23 performance was lower than market expectations, mainly due to the increase in financial rates and productive biological asset disposal losses.
Trend of development
3Q23 income performance is still disturbed by weak demand, and the growth rate of main liquid milk is better than that of the whole. 3Q23's revenue is + 12.3% compared with the same period last year, of which the growth rate of liquid milk in the main industry is 13.2%, which is slightly better than that of the whole. If we exclude the income contribution of Nannong dairy industry (we estimate that it is about 3000-40 million yuan), we estimate that the endogenous income of 3Q company will grow by 6-7% year on year, which is comparable to that of 2Q. We expect that the sales growth rate will still be disturbed due to weak demand. From a regional point of view, the revenue of 3Q23 inside and outside Xinjiang is + 8% and 15% respectively compared with the same period last year; from the perspective of products, the normal temperature / low temperature income of 3Q23 is + 20.6% and + 3.9% respectively compared with the same period last year. The room temperature sector maintains a good growth momentum, mainly due to the expansion of the overseas market of Tetra Pak bricks and their combined contribution.
3Q23 gross profit margin is flat compared with the same period last year, while net profit margin is under pressure due to asset disposal losses and the impact of fees and tax rates. Due to the decline in milk prices due to the reduction in the proportion of outsourced milk sources to 20 per cent after the acquisition of Nannong, 3Q23's gross profit margin was basically unchanged at about 17.6 per cent year-on-year. In terms of expenses, 3Q23 sales, management, R & D rates and financial rates are higher than those of 0.4ppt, + 0.4ppt, + 0.4ppt and + 1.1ppt respectively. The increase in financial rates is mainly due to the increase in borrowing after the acquisition of new farmers. Overall, the 3Q23 operating profit margin is higher than the same period last year-1.3ppt, but due to the increase in the disposal loss of productive biological assets and the increase in effective tax rate in a single quarter, the net interest rate is 2.4% year-on-year, deducting the non-net interest rate year-on-year-2.9ppt.
Operating under short-term pressure, it is suggested to pay attention to the follow-up growth of income outside Xinjiang and the improvement of new agricultural performance. Due to weak consumer demand, the company's revenue growth this year was lower than expected. At the same time, due to the merger and acquisition of new farmers and the decline in milk prices, the short-term performance of animal husbandry assets was under pressure. Looking forward to next year and in the long run, if consumer demand improves, we suggest that we should pay attention to the follow-up company to continue to expand the potential of the overseas market. We expect that the company's factory in Shandong will soon be put into production, and it is also expected to optimize the supply chain outside the territory to provide effective support for market expansion; in addition, the company's current performance is mainly due to the drag of new farmers and animal husbandry, and it is also recommended to pay attention to the repair of the company's profit margin after the performance of new farmers and animal husbandry has improved.
Profit forecast and valuation
Taking into account the weak demand and the drag on the performance of new farmers, the company lowered its 24-year net profit forecast of 27.5% 23.7% to 1.73 billion yuan; the company's current trading price is 17.3 times 23max 24-year Pamp E, corresponding to a target price of 22% to 14 yuan, corresponding to 25.9pm 19.4 times the 24-year Ppace E and 12.7% upside, maintaining an outperforming industry rating.
Risk
Weak demand, intensified competition in the industry, and fluctuations in raw material prices.