Event: the company released its quarterly report for 2023 on October 24. 23Q1-Q3 realized revenue of 2.083 billion yuan, an increase of 12.50%, a net profit of 143 million yuan, a decrease of 7.44%, and a net profit of 144 million yuan, an increase of 3.92%. In the third quarter alone, the company achieved revenue of 694 million yuan, an increase of 12.25%, a net profit of 17 million yuan, a decrease of 63.71%, and a non-return net profit of 27 million yuan, a decrease of 35.52%.

Room temperature products maintained growth, and the growth rate outside Xinjiang slowed down compared with the same period last year. From January to September 2023, the company achieved dairy sales of 220900 tons, an increase of 7.76 percent. In terms of products, the revenue of the company's 23Q3 room temperature products was 390 million yuan, accounting for 56.67%, with an increase of 20.65%, while that of low-temperature products was 268 million yuan, accounting for 38.90%, an increase of 3.90%. From a sub-channel point of view, the revenue of 23Q3's market in Xinjiang reached 363 million yuan, an increase of 8.23%. The company takes Wuchang as the core, focuses on southern Xinjiang, shifts the focus of market development to townships and regimental farms, expands market supply, increases market share, and consolidates the dominant position of the market in Xinjiang. The external market continued to develop and its contribution continued to improve. The company focused on key markets, listed Shandong, Guangdong and Jiangsu as focus markets, and upgraded Shanghai to a nurturing market. 23Q3 achieved revenue of 325 million yuan, an increase of 15.41%, and the speed of expansion outside the border decreased year-on-year due to the intensification of market competition.

The speed of attracting investment has slowed down and production capacity has continued to expand. In terms of dealers, the number of 23Q3 domestic / non-Xinjiang markets increased by 7 / 6 compared with the previous month, with a total of 878 dealers at the end of the period. The company continues to promote production capacity expansion plans, Shandong Tianrun Qiyuan dairy processing project is planned to put into trial operation in the fourth quarter of 23, the company set up a Shandong sales branch, set up a separate sales team, will take Qihe in Shandong as the center, covering the surrounding radius of about 500 kilometers of the Beijing-Tianjin-Hebei region and other markets; differentiated use of the company's sub-brand "Beauty", docking Shandong local government, some state-owned enterprises and Shangchao and other sales channels. In addition, the future 200000 tons of dairy processing capacity project is planned to provide a guarantee for the company's long-term expansion.

Short-term performance is impaired by the elimination of cattle prices in the market and the impact of the merger of new farmers. 23Q1-Q3 achieved a gross profit margin of 19.58%, with an increase of 1.62% and + 0.01pcts with an increase of 1.62% and 17.62% respectively. The rhythm of the company's expenses remained stable, with the 23Q3 sales expense rate of 5.68%, the same minus 0.38pcts, the management expense rate of 3.62%, the same increase of 0.41 pcts, and the R & D expense rate of 0.77%, with the same increase of 0.44pcts. The 23Q1-Q3 net interest rate of the company is 6.84%, 2.41% and 5.04pcts respectively, which is mainly due to the decline in the price of eliminated cattle in the market during the reporting period and the increase in losses after the company merged with Xinnong Dairy. The company increased the purchase of raw materials, and the net cash flow of 23Q3 operating activities was-62 million yuan, with a decrease of 100%.

Investment suggestion: the company is the leading dairy enterprise controlled by Xinjiang bingtuan, maintaining the growth momentum at room temperature, the basic market at low temperature is stable, and the short-term losses made by the acquisition of Xinnong Dairy affect the company's performance. In the medium and long term, it is expected to further consolidate the leading position in Xinjiang and increase its market share outside Xinjiang. We estimate that the company's 23-year 25-year revenue will be RMB 2.07 billion, net profit of RMB 1.8 million, net profit of RMB 2.4 million, and the current share price will be RMB 17X for Pmax E, respectively, maintaining the "recommended" rating.

Risk tips: upstream milk supply risk; competition for expansion outside the border intensifies; food safety issues.