Incident: On March 6, 2024, the company disclosed the 2023 year-end results announcement, which achieved total revenue of 29.225 billion yuan (YOY 2.54%), achieved main revenue of 28.591 billion yuan (YOY 1.2%), and achieved net profit of 1,667 billion yuan (YOY 36.4%). In addition, the company announced a dividend of approximately RMB 1,834 million (corresponding dividend payment rate of 109.99%).
Revenue has weakened, and profitability has increased. Looking at 23 as a whole, on the gross profit side, the company's main business revenue increased 1.18% year on year (the compound annual growth rate of the company's revenue has reached 7.9% since 2020). Furthermore, due to falling prices of some raw materials and optimization of product structure, gross margin increased 1.49 pct year over year to 30.47%, so gross profit increased 6.40% year on year. On the cost side, the company's expense ratio increased by 1.21pct year-on-year, mainly due to the sales expense ratio +1.13pct (the increase in sales expenses was mainly due to the year-on-year increase in brand building, depreciation of marketing assets, and remuneration of business personnel). Furthermore, for the full year of 2023, the company disposed of part of its branch in Hefei, China, with one-time revenue of RMB 351.4 million and investment profit recorded under the equity method of RMB 49.9 million. As a result, the net profit margin to mother increased by 5.83 pct year on year, corresponding net profit to mother increased by about 445 million yuan (YOY +36.40%) year on year.
Beverage business: Continued rapid compound growth over the past 3 years, and scenario & channel empowerment will continue to drive future growth. The company's beverage business reached 17.776 billion yuan (YOY 8.4%) in 2023, and the company's beverage revenue has grown at a compound annual rate of 12.3% since 2020. Furthermore, the net profit margin of the beverage segment in '23 was -0.6pct to 10.9% year-on-year.
By beverage category, among them: (1) The tea and beverage business achieved revenue of 7.580 billion yuan (YOY 9.0%) and maintained steady growth momentum. Among them, “Unify Green Tea” will continue to expand the young drinkers and create a cost-effective national tea through a low-sugar and no-sugar dual product line layout; “King of Tea” will continue to optimize its product capabilities in 2023. (2) The juice business achieved revenue of 3.404 billion yuan (YOY 13.3%). The company adheres to the business strategy of cultivating big flavors around multiple specifications and scenarios. Under the premise of steady management of the ready-to-drink scene, the company deepens the expansion of the catering scene, accelerates the layout of the gift box scene and home scene, and rapidly expands the juice market share. Furthermore, the revenue growth rate of “Voice of the Sea” in 2023 and the compound annual revenue growth rate for the past three years both showed high double-digit growth. (3) The milk tea business achieved 6.305 billion yuan (YOY 5.0%). Among them, “Unify Assam Milk Tea” continues to dig deeper into new opportunities in drinking scenarios and keep pace with the times to launch new flavors to meet consumer needs. While big packages and small but beautiful products continue to be promoted, cans and Tetra Pak packs will be launched in 2023 to seize gift box sales opportunities.
In '24, we are optimistic that the beverage business will continue to grow steadily and rapidly as the company continues to expand diversified scenarios and increase freezing and digitalization.
Food business: Product strength continues to be empowered, and we look forward to business recovery in 24 years. The company's food business achieved revenue of 9.847 billion yuan (YOY -10.56%) in 2013, and the net profit margin of the food division was +0.7 pct to 0.8% year over year.
(1) In terms of instant noodles, in 2023, as the epidemic subsided, consumption steadily expanded, market demand gradually recovered, and consumption became rational; the development of the instant noodles market underwent significant and drastic changes, mainly reflected in changes in consumption scenarios, but cost-effective products are still mainstream consumption, and more emphasis is placed on health, safety, and innovation.
The company's instant noodle business is its mission to meet the needs of the public, adhere to product quality, continue to empower products, greatly enhance product strength, and continuously innovate and iterate to meet the personalized and diverse needs of consumers. (2) In terms of other foods, the vision of “starting a small stove” is to become a social kitchen for Chinese people. In terms of products, it actively lays out frozen layers to promote Chinese food culture, and launched a series of private dishes and frozen fried rice, which received unanimous praise from consumers for its outstanding product strength. In mid-December 2023, Kaizao entered the Spring Festival gift box market and launched a private kitchen dinner gift box to help the Group seize the opportunity in the high-end gift market. Looking ahead to 24, we expect the company's food business to recover as the consumer market recovers and boosts.
Profit forecasting and investment advice. We estimate that in 2024-2026, the company's total revenue will be 315.32/339.68/36.281 billion yuan, and net profit to mother will be 1,581/18.06/2.07 billion yuan, respectively, and the corresponding EPS will be 0.37/0.42/0.46 yuan/share, respectively. Referring to the PE valuation of comparable companies, we gave the company a PE (2024E) valuation range of 16-20 times, corresponding to a value range of 5.92-7.40 yuan/share, calculated at a 0.90 exchange rate between HKD and RMB, corresponding to a reasonable value range of HK$6.58-8.22 per share, and continued to give a “superior to the market” rating.
Risk warning. (1) Market demand declined, (2) product promotion fell short of expectations, (3) raw material prices fluctuated, and (4) food safety issues.