Chengde Lulu disclosed the 2024 mid-year report. The company achieved revenue of 1.63 billion yuan, +9.4% year over year, and realized net profit of 0.29 billion yuan, or -6.8% year over year; of these, 2Q24 achieved revenue of 0.41 billion yuan, +15.4% year over year, and realized net profit to mother 0.05 billion yuan, or -37.8% year over year; the company's off-season revenue growth rate was impressive, and the tonnage price growth rate was faster than sales volume. 1H24 sales expenses increased, and gross margin declined under cost pressure. We believe that the company's incentive system is gradually being improved, and subsequent cost dividends are expected to be released quarterly. It is recommended to actively pay attention to the company's current dividend investment value and maintain the buy rating.
Key points to support ratings
The off-season revenue growth rate was impressive, and the tonnage price growth rate was faster than sales. 1H24 achieved revenue of 1.63 billion yuan, +9.4% year over year, of which 2Q24 revenue was 0.41 billion yuan, up 15.4% year on year. The company continued its faster revenue growth rate during the off-season (the company's total revenue of 4Q23+1Q24 revenue +15.3% year over year), and the performance was impressive. 1H24's sales volume and tonnage growth rates were +2.5% and +6.9% respectively. Among them, the tonnage price growth rate was faster than sales volume. According to the company's announcement, sales prices for products that account for 10% or more of revenue increased 30% year-on-year compared to the same period last year. Furthermore, with the improvement of the incentive mechanism, the company's sales team's motivation increased. Against the backdrop of a weak consumer environment, the revenue growth rate was higher than that of the industry (1H24 beverage club zero growth rate +7.9% year-on-year). (1) By product, 1H24 almond camping revenue was 1.58 billion yuan, an increase of 8.7% over the previous year, with almond dew accounting for 96.9% (-0.6pct) of revenue. Looking at the specific volume price breakdown, the year-on-year growth rates of 1H24 sales volume and tonnage price were +1.5% and +7.1% respectively, contributing significantly to the tonnage price. The total revenue of 1H24's new products, walnuts, almond milk, and other water series products, was 0.05 billion yuan, an increase of 37.3% over the previous year. Among them, almond milk achieved relatively rapid growth at a low base. (2) Looking at the subregion, the revenue of the northern 1H24 region was 1.49 billion yuan, up 9.6% year on year, accounting for 91.0% (+0.2pct) of revenue. By the end of the second quarter, there were a total of 576 dealers in the northern region, an increase of 28 compared to the end of 2023.
Revenue in the central 1H24 region and other regions was 0.1 billion yuan and 0.05 billion yuan respectively, -4.7% and +39.2% year-on-year respectively. The company continues to promote the expansion of new channels, new regions, and new consumption scenarios, and strengthen efforts to develop weak markets. 1H24 has developed 104 high-speed rail stores, 143 school stores, built 5,413 image stores, hosted 3,754 banquets, and developed 4,879 restaurants.
Gross margin declined under cost pressure, and sales expenditure increased. (1) On the cost side, due to climatic factors, production of wild almonds was drastically reduced in 2023, causing the purchase price of wild almonds to increase by more than 30% during the 1H24 procurement cycle, causing the company's 1H24 ton cost to increase sharply by 13.4% to 5855 yuan, and gross margin decreased 3.4 pct to 41.8% year over year; (2) on the cost side, the company's 1H24 sales/management/finance expense ratio was +0.9/+0.2/+0.3 pct to 16.7%/1.4%/-1.4%, respectively. As the company stepped up efforts to promote new products and expand the market, 1H24 sales staff remuneration and promotion expenses increased significantly, and the company's sales expenses rate rebounded year-on-year under a low base. The increase in the management expense ratio is mainly due to the increase in the cost of equity incentives; (3) On the profit side, due to the increase in raw material costs and the increase in sales expenses, the company's 1H24 net interest rate to mother was -3.1 pct to 18.0% year over year, and net profit to mother was -6.8% to 0.29 billion yuan compared to the same period last year.
The company's cost dividends are expected to be released quarterly, and revenue targets are expected to be achieved throughout the year. We expect that after entering a new procurement cycle in July-August, the company's procurement costs for Noyama almonds will drop sharply, and cost dividends are expected to be released quarterly, driving the company's Q3 and Q4 performance growth rate to pick up quarter by quarter. 2024 is the first year of the company's equity incentives. The incentive system is perfect, and the overall motivation of employees is high. With the arrival of the peak sales season, the company actively prepared goods and made continuous breakthroughs in new channels, new regions, new products, etc. 1H24's direct sales channel achieved revenue of 0.11 billion yuan, a year-on-year increase of 134.1%. Based on the performance of the first half of the year, we expect that the full year's revenue target will be achieved. From the perspective of the dividend rate, the company has sufficient cash reserves. The dividend ratio for 2023 is over 65%, and the current corresponding dividend rate exceeds 5%. It is recommended to actively pay attention to the company's current dividend investment value.
valuations
Based on revenue changes and cost changes in the 2024 mid-year report, we adjusted our previous profit forecast. We expect the 24-26 EPS to be 0.61, 0.71, 0.75 yuan, +0.5%, +15.8%, and +6.9%, corresponding to 24-26 PE 11.9, 10.3, and 9.6 times. The dividend ratio will increase in 23, and the future performance can be expected to accelerate and maintain the purchase rating.
The main risks faced by ratings
The procurement price of raw materials in the new cycle falls short of expectations, and the expansion of new products falls short of expectations