Investment advice: Maintain the “increase in holdings” rating with a target price of HK$6.07. We expect the company's revenue to be 235.1/259.3/28.58 billion yuan in 2023/2024/2025, with a year-on-year ratio of +10.3%/+10.3%/+10.2%; the net profit of the mother is 53.7/61.0/6.95 billion yuan, +8.6%/+13.7%/+13.9%, respectively. The company's target price corresponds to 9 times P/E in 2023. Investors are advised to pay attention.
Promoting the “fresh” strategy and optimizing channel inventory, the revenue growth rate of the three major businesses declined: in 2022, the company implemented a “fresh” strategy to further reduce channel inventories of products such as Star Feifan to maintain a high level of freshness of shelf products. Annual revenue fell 6.4% year-on-year to 21.31 billion yuan, and the growth rate fell 28.9 pct. Among them, infant formula products fell 7.4% year on year to 19.03 billion yuan, a growth rate of 29.1 pct; revenue from other dairy products increased 16.4% year on year to 1.15 billion yuan, a growth rate of 46.9 pct; revenue from nutritional supplements fell 16.6% year on year to 230 million yuan, and the growth rate fell 3.2 pct year on year.
Product structure changes and gross profit levels are under pressure: Due to rising raw material costs and increased company promotions, the company's sales costs in 2022 increased 8.7% year-on-year to 7.36 billion yuan. Affected by changes in infant formula product structure and cost increases, gross margin fell 4.8 pct to 65.5% year on year from 70.3% year on year. The company's sales expenses ratio increased 1.2 pct to 30.7% year on year; employee costs and R&D expenses increased, and management expenses increased 1.9 pct to 7.2% year on year. The company's net profit decreased 28.4% year on year to 4.95 billion yuan, and the net profit margin fell 7.1 pct to 23.2% year on year.
Promote innovation-driven development strategies and diversified product development: The company is one of the earliest infant formula companies in China. The company closely follows industry frontiers, builds research platforms with well-known universities based on academician workstations and postdoctoral workstations, strengthens product research and innovation, promotes the transformation of scientific research results into products, and accelerates the iterative upgrading of the company's product formulations. The company provides a diverse product portfolio. In addition to the regular infant formula series, there are also adult and student milk products to further meet the needs of downstream consumers.
Risk warning: food safety incidents; number of newborns falls short of expectations; promotion of new products falls short of expectations.