Incidents:
Qianhe Flavors released its 2023 annual report and 2024 quarterly report. In 2023, the company's revenue/net profit to mother was 3.207/530 billion yuan, up 31.62%/54.22% year on year; 24Q1, the company's revenue/net profit to mother was 895/155 million yuan, up 9.28%/6.66% year on year. 24Q1 revenue was in line with expectations, and net profit margins were slightly lower than expected.
Channels continue to expand, driving revenue growth
By product, the company's main products are soy sauce and table vinegar. The company achieved revenue of 20.40/ 422 billion yuan in 2023, with year-on-year growth rates of 34.85%/11.75%, respectively, and gross margin increased 0.44/2.05pct year-on-year to 37.59%/39.07%, respectively. Among them, the sales/average price of soy sauce products was 33.19%/1.24% year over year, and the sales/average price of vinegar products was 13.66%/-1.68% year over year, respectively. Revenue increased or mainly from volume. Looking at the subregion, in 2023, the company continued to develop the national market for condiments, and continued to strengthen the management of cities, channels and dealers at all levels to achieve steady revenue growth. The central region had sufficient development potential, with revenue up 80.97% year-on-year to 449 million yuan. The East/South/North/West segment achieved revenue of 7.12/2.08/5.67/1,229 million yuan, an increase of 30.94%/26.00%/27.09%/23.77%. From the perspective of the number of dealers, the company had a net increase of 1,020 dealers in 2023, with a net increase of 256/259 in the central and western regions, with a net increase of 256/259 respectively.
Product upgrades+cost reduction and efficiency, profit levels are expected to increase
The company continues to strengthen the development and promotion of organic natural fermentation, zero additives, healthy and tasty, and high-quality products, and optimize the existing product structure. In 2023, the company's gross margin was 37.15%, an increase of 0.59 pct over the previous year. The company's sales expense rate/ management expense rate/ R&D expense ratio in 2023 were 12.22%/3.87%/2.70%, respectively, -1.36/0.87/0.05pct, respectively. The net interest rate increased 2.42pct to 16.54% year-on-year during the reporting period. Looking forward to the future, the company's profit level is expected to continue to rise as the product structure is upgraded and cost reduction and efficiency measures are promoted.
Profit Forecasts, Valuations, and Ratings
Considering the continued weak recovery in terminal demand, we adjusted the company's revenue for 2024-2026 to 37.68/43.70/5,069 billion yuan, respectively, with year-on-year growth rates of 17.49%/15.99%/16.00%, and net profit to mother of 68/779/912 million yuan, respectively. The year-on-year growth rates were 24.06%/18.41%/17.08%, EPS was 0.64/0.76/0.89 yuan/share, respectively, and the 3-year CAGR was 19.81%. In view of the continued expansion of the company's channels, with reference to comparable company valuations, we gave the company 34 times PE in 2024, with a target price of 21.76 yuan, maintaining a “buy” rating.
Risk warning: fluctuating costs; increased industry competition; food safety risks.