Incidents:

Chunxue Foods released its 2022 annual report and the first quarter report of 2023: the company achieved revenue of 2,495 million yuan in 2022, +22.71% year on year; Guimu's net profit was 79.2498 million yuan, +40.06% year on year.

2023Q1 achieved revenue of 689 million yuan, +41.69% year on year, and net profit of 8.4301 million yuan to the mother, -28.42% year on year.

Key points of investment:

The company achieved revenue of 2,495 million yuan in 2022, +22.71% year on year; the net profit of the mother was 79.2498 million yuan, +40.06% year on year. In 2022, the gross margin of the company's main products continued to increase. 2023Q1 achieved revenue of 689 million yuan, +41.69% year on year, mainly due to the slaughter plant being put into operation and an increase in production and sales; Guimu's net profit was 8.4301 million yuan, -28.42% year on year, mainly due to the low gross margin level in the first quarter.

The transformation and upgrading strategy is progressing steadily. The company maintained steady growth in sales volume and sales of condiments (prepared dishes), totaling 58,000 tons in 2022, an increase of 7% over the previous year; achieved sales of 1.2 billion yuan, an increase of 13% over the previous year, accounting for 63% of total food revenue, and over 50% for three consecutive years, continuing to lead the industry. In 2022, the company seized the favorable opportunity of changes in the US dollar exchange rate and actively explored foreign markets. The export volume of chicken condiments (prepared dishes) was 18,500 tons, an increase of 50% over the previous year, and exports generated 84 million US dollars in foreign exchange, an increase of 61% over the previous year.

Seize the trend of the prepared vegetable industry. In 2022, the national prepared food industry entered a stage of rapid development.

After years of accumulation, the popular product “Poppy Chicken Rice Flakes” created by the company sold a total of 1,2072 tons in 2022, with sales of 150 million yuan, accounting for 12.5% of condiments (prepared dishes) revenue. The average monthly sales volume exceeded 1,000 tons, and the average monthly sales exceeded 10 million yuan. The single product covered e-commerce, supermarkets, convenience stores, restaurants and distribution channels. It is planned to sell more than 1500 tons per month in 2023.

The C-side market continues to gain strength. In 2022, the company seized the opportunity of JD to include Chunxue Foods in 20 strategic support categories of over 100 million yuan, and participated deeply in shopping festivals such as JD 618 and Double 11. By the end of 2022, the company's products have now entered more than 70% of the top 100 domestic retail systems and well-known domestic online retail channels, covering more than 7,000 terminal supermarkets (including national benchmarks and local regional chain systems), covering more than 80% of large and medium-sized cities in China.

Production capacity continues to be released. The “Smart Factory Project to Slaughter 50 Million Broilers a Year”, which the company invested 320 million yuan to build in 2021, was put into operation in August 2022, adding 120,000 tons of fresh chicken design capacity per year. Construction began in March 2022, with an investment of 246 million yuan to build a new “smart factory project with an annual output of 40,000 tons of chicken condiments”. It is expected to be put into operation in September 2023, adding 40,000 tons of chicken seasoning (prepared dishes) design capacity per year. As of the disclosure date of the 2022 annual report, the company currently has a design production capacity of 72,400 tons of chicken condiments (prepared dishes), a production capacity of 40,000 tons under construction, and a design capacity of 240,000 tons of fresh chicken products.

Profit forecasting and investment ratings Considering the low gross margin level in Q1 2023, we adjusted the 2023-2025 company's net profit to be 1.64/241/275 million yuan, corresponding to PE 16.71/11.34/9.96 times, respectively. As an enterprise that mainly lays out the White Feather Downstream industry chain, the company is expected to share the dividends of the industry's inflection point, while maintaining long-term growth value to maintain the “buy” rating.

Risks indicate the risk of fluctuations in the price of chicks; the risk of fluctuations in raw material prices; the risk of environmental protection; the risk of contract farming; the risk of food safety; the risk of the company's performance expectations not meeting standards; the progress and benefits of new construction projects falling short of expectations; the risk of the epidemic; the risk of exchange rate fluctuations, etc.