Incident Overview

The company announced that it achieved total operating income of 16.12 billion yuan in '22, or -17.4% year on year; net profit of the mother was 80 million yuan, +111.5% year on year.

23Q1 achieved total operating revenue of 3.48 billion yuan, +4.1% year on year; net profit of 0.2 billion yuan was achieved, -9.6% year on year; Mr. Yu Yu, the former chairman of the company, resigned due to personal reasons, and the company's board of directors elected Mr. Yang Xiaochu as the chairman of the fifth board of directors.

Analytical judgment:

The prepared food business is gradually entering the right track

By business, the slaughtering/food/other sectors achieved revenue of 120.3/165/82 billion yuan respectively in '22, -12.6%/+7.1%/+93.8%, respectively. The decline in the slaughter business was mainly due to the slaughter volume of 5.894 million heads in '22, -8.1% compared to the previous year. At the same time, combined with falling pork consumption demand and low pig prices, we judge that the company's slaughter volume declined in double digits in 23Q1. At the same time, pig prices continued to be low and slaughter revenue continued to shrink. The prepared dishes sector in the food business achieved revenue of 1.31 billion yuan in 22 years, +11.2% over the same period last year. We believe that the main reason is that the company successfully cultivated large products worth 100 million yuan, such as fat sausage, crispy meat, and bacon. According to the company's official account and the company's customs clearance activity records, the 23Q1 prepared dish business was +71.0% compared to the same period last year, with 180+ newly developed dealers. Up to now, the number of newly developed prepared food dealers has increased to nearly 1,000.

Looking at each channel, we expect the large B/medium B/C side of the prepared food business to account for about 50%/40%/10% respectively in '22. According to the company's customs investment activity records, since 23, the growth rate of Big B has been significantly higher than that of Small and Medium B. For example, Yum in 23Q1 grew 40%, Half Sky Demon grew by more than 25%, and Big B and Medium B achieved growth rates of around 40%/30% respectively in 23Q1. Looking ahead to the whole year, we think the prepared dishes sector is expected to achieve good growth under a low base and the recovery of consumption scenarios on the catering side, and the company's prepared food business is gradually on the right track.

The share of food revenue continues to rise, and losses were reversed in '22

The company's overall gross profit margin in '22 was 4.0%, +2.1pct over the previous year; among them, the gross margin of slaughtering/food/import trade was 1.7%/13.0%/7.8%, respectively +0.2/flat /9.6pct, respectively. We believe that the increase in the company's gross margin was driven by a sharp increase in the gross margin of the food business on the one hand due to the food business's share of +2.3pct compared to the previous year, and on the other hand, the gross margin of the import trade business increased significantly. The sales/management expense ratio in '22 was 1.1%/1.7%, respectively -0.1/+0.2pct compared to -0.1/+0.2pct, respectively, and remained stable. The net interest rate in '22 was 0.6%, +5.0 pct year on year. On the one hand, the increase in gross margin contributed, and on the other hand, the company's asset impairment losses decreased by 590 million yuan over the same period last year.

In 23Q1, the company's overall gross profit margin was 4.7%, +1.0pct compared to the previous year. We judge that the main factor was the increase in gross margin and share of the food business. The sales/management expenses ratio was 1.2%/1.9%, respectively, the same as -0.3/year on year, respectively, and remained stable. The net interest rate for 23Q1 was 1.1%, -0.3 pct compared to the previous year, mainly due to a decrease in asset income of 0.2 billion yuan.

Executives change companies and enter a new journey of development

According to the company's official WeChat account, under the leadership of the new chairman, the company will continue to steadily promote a “integrated two-wing” development strategy with prepared dishes as the core food body, with slaughter and farming as the two wings supported. The company adheres to the “B-side as the main channel, supplemented by the C-side” channel strategy, which clearly focuses on expanding the distribution channel network for small and medium-sized customers and developing a channel operation model complemented by franchisees. In 2022, the company made a breakthrough in the large series of prepared dishes, creating large products worth 100 million yuan and 10 million yuan, such as the fat sausage series, crispy meat series, bacon series, grilled sausage series, and meatball series. At the same time, Sichuan cuisine products such as boiled beef, spicy chogori liver, etc., and the “fat sausage +” series products developed by the company received positive feedback from the market.

In the future, the company will continuously upgrade its product innovation capabilities, channel expansion capabilities, and production capacity expansion capabilities to build the core competitiveness of food.

Investment advice

According to the company's Q1 performance and combined with the current pig price (according to data from the Pig Search Network, the national average pig price on June 14 was 14.23 yuan/kg, -11.6% year on year, -0.4% from yesterday) is still fluctuating at the bottom. The slaughter business, which accounts for a large proportion of the company's revenue, was lowered from 207.0/24.45 billion yuan to 1730/19.39 billion yuan, adding 25-year operating income; Guimu's net profit was lowered from 23/39 million yuan to 23/39 million yuan 12/ 190 million yuan, adding a net profit of 280 million yuan for 25 years; EPS was lowered from $0.21/0.36 to $0.11/0.17, adding $0.26 of EPS for 25 years. The closing price of 8.45 yuan on June 15, 2023 corresponds to PE 76/49/33 times, respectively, maintaining the “increase in holdings” rating.

Risk warning

The economic recovery fell short of expectations, the impact of the epidemic continued, market competition intensified, food safety issues, etc.