Incident: Company discloses semi-annual results for fiscal year 2023. In the first half of fiscal year 2023, the company achieved revenue of 11.275 billion yuan (YOY +4.08%) and net profit to mother of 1,732 billion yuan (YOY +8.53%).
Revenue growth has recovered, and gross margin has improved markedly. On the revenue side, the first half of FY2023 was mainly affected by the growth in dairy & beverage sales. The company's revenue increased 4.08% year over year. Furthermore, due to the continuous optimization of the product structure and the decline in unit prices for some bulk raw materials, gross margin increased by 2.42 pct to 45.24% year on year, so gross profit increased 9.97% year on year; on the cost side, the company's period expense ratio increased by 1.48 pct year on year (mainly due to management expense ratio +0.18 pct year on year, financial expense ratio +1.73 pct year on year). As a result, the net profit margin to mother increased by 0.7 pct year on year, corresponding net profit to mother increased by 8.53% year on year.
Canned milk and overseas rice crackers performed well, and candy recorded a record profit in the first half of the year. In the first half of fiscal year 2023, in terms of performance by category: (1) The company's revenue in the dairy and beverage category increased 7.1% year-on-year. Among them, the earnings of Wangzai milk grew by medium to high single digits year-on-year (mainly benefiting from the year-on-year increase of about 20% of canned milk).
In addition, the company also launched large-format Wangzai milk suitable for the restaurant market and Wangzai children's nut milk for the high-end dairy market. On the profitability side, the unit consumption cost of packaging materials such as tin sheets and raw paper fell by a single digit year on year to middle double digits. Furthermore, the unit consumption cost of imported whole milk powder remained flat, so this business achieved a gross profit margin of 47.3% (+2.0pct year over year).
(2) Revenue from the rice crackers category increased 4.5% year on year, with the main brand Rice Crackers growing in single digits (mainly benefiting from the double digit growth of overseas business, which accounts for about 20% of rice crackers performance, compared to the same period in the first half of FY22). Furthermore, thanks to channel diversification strategies, revenue from rice crackers from emerging channels (accounting for about 10% of the revenue in the rice crackers category) has also achieved double-digit growth. On the profitability side, benefiting from a 30% decrease in palm oil usage costs compared to the same period in the first half of FY22 and continuous optimization of labor costs, this business achieved a gross profit margin of 43.8% (+6.6pct year over year).
(3) Revenue from the snack food category declined 1.5% year on year. The main ice products category had a high single-digit decline in the first half of FY2023 (April-September) and the first half of FY22 due to the pre-rhythm, but in the natural year (January-September), the year-on-year growth was year-on-year (in addition, in the natural year (January-September), the revenue scale reached 300 million yuan, and still maintained high single-digit growth). However, revenue in the candy category grew by a single digit compared to the same period in the first half of FY22, hitting a high profit point for the first half of the year. On the profitability side, due to the double-digit increase in the unit consumption cost of sugar and the increase in the unit consumption cost of gelatin by about 30%, offsetting the effects of some of the cost reduction, the gross margin of this business reached 43.0% (+0.8 pct compared to the previous year).
We look forward to continuing the positive trend in the second half of the fiscal year. Looking ahead to the second half of the fiscal year, on the one hand, the rice cracker market will usher in the peak sales season for the Spring Festival, and the company's customized gift packages will meet the individual needs of more consumers; on the other hand, the company will continue to promote the expansion of emerging channels and overseas markets, and continue to promote sales of potential terminal products. We expect the company's sales performance to continue to be stable and positive in the second half of the fiscal year.
Profit forecasting and investment advice. Consumption was expected to recover in 23, and performance expectations were better. However, judging from the first half of the fiscal year, environmental demand is still weak. At the same time, discount stores in the snack industry will divert some companies' traditional channel business. Furthermore, considering that the Spring Festival in February '24 and the Spring Festival in January '23 are affected, there are delays in preparation. Therefore, we expect the company's total operating revenue for the 2023-2025 fiscal year to be 240.15/256.76/27.081 billion yuan, respectively. The main operating income is 236.16/252.77/26.682 billion yuan respectively, and net profit to mother is 37.10/ RMB 41.61/498 billion, corresponding EPS was RMB 0.31/0.35/0.39 yuan/share (original net profit forecast was RMB 41.37/47.33/5.503 billion yuan, respectively, corresponding EPS was 0.35/0.40/0.46 yuan/share, respectively).
We believe that, with reference to comparable companies' PE valuations, we have given the company a 20-fold PE (2023E) valuation unchanged, corresponding to a share price of 6.20 yuan/share, corresponding to a target price of 6.89 HKD/share (-11%) based on the HKD/RMB 0.90 exchange rate, and continue to give it a “superior to the market” rating.
Risk warning. (1) Food safety risks, (2) increased market competition, (3) new products, new channels, and new market expansion fell short of expectations, and (4) upstream raw material costs fluctuated greatly.