In 2022, the company's revenue/net profit attributable to the mother increased by +4% /- 31% year on year to 890 million/303 million yuan. During the year, the cost of raw materials such as dabao powder and sugar rose, and customer traffic from restaurants and other channels declined. The company's revenue growth slowed and profitability declined. Looking ahead to 2023, we believe that the company's fundamentals are expected to improve as the price of big bread noodles falls, channels such as restaurants and hotels resume, and the company promotes the market of new cheese products.

The company's revenue/net profit attributable to the parent in 2022 was +4% /- 31% year-on-year to 890 million/53 million yuan. In 2022, the company achieved operating income of 890 million yuan (+4.1% year on year), net profit of 53 million yuan (+-31.0%), net profit of non-return mother of 45 million yuan (+3.5% year on year); among them, in 202Q4, the company's revenue was 250 million yuan (+3.5% year on year), net profit of 14 million yuan (-20.7% year-on-year) after deducting net profit of 12 million yuan (-30.7% year-on-year). Under the influence of the Q4 epidemic, the company's single-quarter revenue slowed month-on-month, while the cost of raw materials such as large bags of flour remained high , the company's profits are under pressure.

The epidemic has dragged down the increase in revenue from condensed milk, the performance of coconut products has been impressive, and retail cheese research and development has paid off. In 2022, the company's concentrated dairy products (mainly condensed milk) revenue was 600 million yuan, +10.0% year on year (2022H1 +13.2%), and the 2022 H2 epidemic further dragged down the development of the concentrated dairy business; dairy trade annual revenue was 2.2 yuan, -14.5% year on year (2022H1 -33.9%), the 2022H2 epidemic was unblocked, domestic and foreign logistics supply chains recovered, and dairy trade returned to growth in the second half of the year; revenue from other products was 78 million yuan, +29.0% year on year. Among them, coconut products performed brilliantly, with annual revenue of 62 billion yuan. +22.6% compared to the same period last year. After early product development, production and sales, the company has now formed a four-category matrix of “mainly condensed milk, with cream, cheese, and plant-based as the second growth curve”. During the reporting period, the company promoted research and development of new cheese products, and launched products such as the Red Panda Companion series of new cheese products and the cheese snack series, which received unanimous praise in the market.

Prices of raw materials increased, and the company's profits were under pressure; the company cancelled previous equity incentives. In 2022, when prices of large bags of flour, sugar, cheese, etc. from overseas rose, the company's cost side was under strong pressure, and profits declined. Although the company initiated a price increase of 3% to 10% for major condensed milk products at the beginning of the year, the increase in raw material costs still exceeded the company's price increase. The company's gross margin in 2022 was -4.2 Pcts to 19.3% year on year. Among them, the gross margin of concentrated dairy/dairy trading/other businesses was -6.9/-4.2/+3.6 Pcs, respectively. In 2022, the company's sales rate was -0.4 Pct/management+R&D rate was flat year over year/the financial rate was -0.1 Pct year over year. The final company's net interest rate to the mother/net interest rate after deducting non-return to the mother was -3.0 Pcts/-2.8 Pcts compared to the previous year to 6.0%/5.0%. Due to major changes in the external environment, the performance evaluation indicators set in the company's previous equity incentive plan no longer match the company's current operating situation, and the company suspended the previous equity incentive plan. In 2023, the company will seize opportunities to actively expand customers by seizing recovery opportunities in food, tea, baking, etc., while promoting the market for new cheese products, creating model stores, and accurately advertising.

Risk factors: food safety issues; increased market competition; the company's new products & new market development fell short of expectations; risk of fluctuations in raw material prices.

Investment advice: Considering the relatively slow recovery of domestic consumption and the fact that sugar prices have risen a lot since 2023, the company's 2023/2024 EPS forecast was lowered to 0.64/0.78 yuan (original forecast of 0.75/0.93 yuan), and the new 2025 EPS forecast was 0.92 yuan. Referring to comparable companies' 2023 PE levels (Hairong Technology 29x, Mioko Landuo 42x, based on Wind's consistent expectations), considering the company's better growth in the next few years and its dominant position in the condensed milk industry, the company was given 36 times more PE in 2022. The corresponding target price was 23 yuan, maintaining the “increase in holdings” rating.