Incident: The company released its 2002 annual report and January-January operating data. We believe that the bottom of the company's operations confirmed that this year, driven by industry recovery and the release of new products, operations will gradually enter an accelerated upward channel, compounded by the decline in the company's oil raw material costs, and the release of profit elasticity is highly certain. This reaffirms the company's optimistic logic.

Supported by incentive targets, revenue is expected to increase substantially in 2023. The unlocking conditions for the company's equity incentives correspond to this year's revenue assessment target requirements of about 3,553-33 billion yuan (offline is the trigger value, that is, 80% of the target value of the growth rate, unlocked proportionately). The corresponding year-on-year growth rate is 23%-34%, which is clearly faster than historical performance. Currently, the company is relatively confident that it will complete. Specifically, 1) Grease used in baking: Prices fell and increased due to cost pressure last year, volume and price were -15%/+8% respectively. This year, as the demand side of the industry recovers, sales are expected to return to normal levels. 2) Whipped cream: Benefiting from domestic substitution under the pandemic last year, volume and price increased sharply, and revenue increased 7% year-on-year. This year, the company will step up promotion of new whipped cream products for cakes. It is expected that the whipped cream business will achieve a 20-30% + growth rate. 3) Imported products: Benefiting from the rapid growth of Miller's whipped cream and European OEM's own products, they performed well under the pandemic, with an increase of 18% in 2022, and the high growth trend is expected to continue this year. 4) Frozen dough: The company is actively planning its production capacity. Considering the design capacity of 1.3 watts by the end of 2022, combined with the production capacity of 1.2 watts under construction in 2023, it is expected to more than double this year. The company collaborated with Sam to supply new bagels in Q4 last year. Currently, only cranberry flavors have been introduced. In the later stages, the company is expected to develop more flavors of bagels to consolidate Sam's demand and sales of bagels, and expand channels such as bakeries, restaurants, and coffee shops.

The cost of palm oil is declining, and there is a high degree of certainty that profitability will improve. At present, the market price of palm oil has fallen back to around 8,000 yuan/ton. In 2022, palm oil reached a high of about 16,000 yuan/ton, with an average price of about 10,300 yuan/ton, a clear decline from the previous high. The company already digested the inventory of high-priced raw materials at the end of last year, and lightweight packaging went into operation this year. Currently, the company's procurement cost price is close to the market price. It is expected that palm oil will remain around 80,000 yuan/ton throughout the year, and the baking grease business can be expected to recover. The capacity utilization rate of the frozen dough business was relatively low when a new production line was put into operation last year, and the pressure to amortize fixed costs was high. As production capacity increased, there was still room for the gross margin of frozen dough to rise. The company's net interest rate last year was 5.6%. According to neutral estimates, the company's net interest rate is expected to rise to 8-9% this year. Under optimistic recovery, it is expected to achieve a net interest rate of 9% +.

Profit forecast: The company's net profit for 2023-2025 is expected to be 347 million, 485 million yuan, and 615 million yuan respectively, up 116%, 40%, and 27% over the previous year. The corresponding valuations are 30x, 22x, and 17x respectively. Considering the confirmation of the inflection point of this year's difficult situation, it was raised to the buying rating.

Risk warning: production capacity falls short of expectations, customer expansion falls short of expectations