Market demand is still weak and the company is still in a period of adjustment.

14-year revenue fell 15.2 per cent to 1.4 billion yuan, and profit attributable to shareholders fell 29.0 per cent to 548 million yuan: due to the company's discounted sales of old craft products and older inventory during the year, coupled with sluggish market demand, the company's 14-year revenue fell 15.2 per cent year-on-year to 1.4 billion yuan. Among them, the fall in H2 volume and price led to a 24.6% decline in income, which was particularly weak. Affected by the decline in average selling prices, the company's overall gross profit margin also fell 3.6 percentage points year-on-year to 54.9%. During the year, the company increased bank borrowing by about 630 million yuan, resulting in a 129.7% year-on-year increase in financing costs to 15 million yuan. Coupled with a reduction in government subsidies and an increase in administrative fees, the company's profit attributable to shareholders fell 29.0% year-on-year to 548 million yuan. For the whole year, the dividend per share totaled HK12 cents, and the dividend payout rate dropped to 55.7%.

The old formula products are close to being sold out, but the inventory is still difficult to digest in the short term: at present, the old formula products and older products have been basically cleaned up, and it is expected that this year will mainly sell new craft products without discounts, which is good for the company's 15-year gross profit margin. Due to the lower-than-expected market demand, the company's inventory of work-in-process and finished goods increased by 89.4% to 740 million yuan compared with the same period last year, and its turnover days increased to 327.3 days (13 years: 149.9 days). It is expected that the company will take a long time to reach the normal inventory level.

Focusing on diversified product strategy, the company accelerates the pace of transformation: in the future, the company will launch gelatin (edible and pharmaceutical grade gelatin), cosmetics and collagen functional health food (protein powder) to develop diversified product strategy. At present, the company has spent a total cost of about 4.8 million yuan to acquire Sanjian Pharmaceutical to produce gelatin products. The company expects to invest 180 million yuan in 15 years, mainly for the research and production of new products such as gelatin and collagen powder. Some of the new products may be launched in the second half of the year and are expected to reach 1.5% of total sales.

Maintain the rating with a target price of HK $2.58: due to the continued weak market demand, the replacement rate of protein casings for natural casings is still low, and the inventory pressure is high, so we expect the company's annual revenue for 15 years to increase only slightly by 1.5% to 1.42 billion yuan compared with the same period last year. Although the company's future gross profit margin is expected to improve, it will still be difficult to return to the previous level, and competition with peers such as Devro will also affect the company's future profit release.

We are optimistic that the diversified product strategy is good for the company in the long run, but it is less helpful to the company's revenue in the short term, and the new products still need to be tested by the market. Given the company's good cash flow and dividend level, the company is given a target price of HK $2.58, equivalent to 12 times the 15-year earnings forecast, with 3.0% room to rise from the current price and maintain its rating.