Incident: The company released its 2022 annual report. In 2022, the company achieved operating income of 2,861 million yuan, a decrease of 0.4%; net profit attributable to the mother was 161 million yuan, a decrease of 56.41%. Among them, 2022Q4 achieved operating income of 782 million yuan, a decrease of 4.38%, and the net profit of its mother was 28 million yuan, a decrease of 70.69%.

Revenue side: The company achieved revenue of 2,861 billion yuan in '22, a decrease of 0.40% over the previous year, mainly due to changes in the domestic economic environment that had an inevitable impact on the offline consumer market, which led to a slight decline in sales of the company's main products compared to the same period last year. 1) On a quarterly basis, Q1/Q2/Q3/Q4 companies achieved revenue of 660 million yuan/766 million yuan/654 million yuan/782 million yuan respectively, with year-on-year changes of 1.94%/7.17%/-5.71%/-4.38%. 2) By product, in 2022, the company achieved revenue of 1,540 million yuan/510 million yuan/593 million yuan/196 million yuan/14 million yuan for baking oil, whipped cream, dairy products, frozen dough and fillings, respectively, with year-on-year changes of -8.91%/6.90%/18.05%/10.35%/-12.88%. The reason for the rapid growth of whipped cream, dairy products, and frozen dough products was the active launch of new products that were well received by consumers. Among them, whipped cream grew the fastest. The main reason was that the company introduced a new British red miller whipped cream. Its 35% cream content and high stability characteristics were favored by customers; the company's frozen dough business expanded rapidly, and production capacity constraints at the Shanghai plant were alleviated, and it is expected that production capacity constraints will continue to be released in the future. 3) By sales model, distribution and direct sales were the main revenue channels, achieving revenue of 1,587 billion yuan and 1,268 million yuan respectively, accounting for 55.57% and 44.38% respectively, with year-on-year changes of -8.01% and 11.02%.

Expenses: The fee rate during 2022 was 14.50%, a decrease of 0.36 pct over the previous year. Among them, the sales expense ratio was 7.56%, an increase of 0.20 pct; the management expense ratio was 5.72%, the same increase of 0.24 pct; the R&D expense ratio was 2.46%, a decrease of 0.31 pct; and the financial expense ratio was -1.24%, a decrease of 0.50 pct. The overall sales expenses ratio and management expenses ratio were stable. The changes mainly came from the increase in the proportion of employees' remuneration expenses.

On the profit side: The company's net profit for the 22Q1-Q4 single quarter was 53 million yuan/73 million yuan/070 million yuan/070 million yuan/028 million yuan respectively, with year-on-year changes of -45.70%/-25.62%/-90.90%/-70.69%. The company's net interest rate for the 22Q1-Q4 single quarter was 8.04%/9.48%/1.09%/3.55%, year-on-year change -7.06/-4.22/ -10.24%/-8.04pct.

The decline in net interest rates may be mainly due to 1) offline consumption has not recovered due to internal and external factors, and sales of major products have declined; 2) operating costs have increased mainly due to fluctuations in raw material prices.

Profitability came out of the trough and continued development of new products. Currently, there is a marginal improvement on the company's profit side. In December '22, the company achieved revenue of 280 million yuan and profit of 18 million yuan, corresponding to a net interest rate of 6.51%, +4.33pct compared to November. We believe that the company's cost pressure will gradually decrease, and the company's profits are expected to continue to improve in the future. On the channel side, the company consolidated the decline of Tier 1 and 2 cities into Tier 3 and 4 cities, and adopted different strategies for different business formats. By the end of 2022, the number of dealers was 360, 90 new, a decrease of 35. The total sales revenue of the new dealers in 2022 was 65.3509 million yuan. The decrease in dealers corresponded to the previous year's sales revenue of 103.482 million yuan.

Investment advice: With the implementation of production capacity for frozen dough and other businesses, the company will further cultivate the bakery market and unlock new consumption scenarios such as tea, drinks, and restaurants. Future performance is expected to develop rapidly. We forecast the company's net profit to the mother in 2023-2024 to be 37/48 million yuan, corresponding to PE29X/22X, maintaining the purchase rating.

Risk warning: product promotion falls short of expectations; revenue growth falls short of expectations; new business development falls short of expectations; food safety risks