Key points of investment

The company's revenue was flat year on year in 2022, mainly because the epidemic had a great impact on terminal demand in the bakery industry; Guimu's net profit declined significantly year-on-year, due to rising prices of raw materials such as palm oil, and a large decline in gross margin, which affected the performance level in '22. Following the liberalization of prevention and control in '23, terminal demand quickly recovered and picked up, and palm oil prices fell year-on-year. I am optimistic about the marginal improvement in the company's performance in the context of rising demand and falling costs, focusing on target investment opportunities.

The 2022 performance was affected by the pandemic and rising costs, and the performance declined year-on-year, in line with market expectations.

In 2022, the company achieved revenue of 2,861 million yuan, down 0.40% from the previous year; achieved net profit of 161 million yuan, down 56.41% from the previous year; and achieved net profit of 148 million yuan after deducting non-return to the mother, down 58.20% from the previous year. Among them, 22Q4 achieved revenue of 782 million yuan, a decrease of 4.38% over the previous year; net profit of 28 million yuan was achieved, a decrease of 70.69% over the previous year; net profit of the non-return mother was 23 million yuan, a year-on-year decrease of 75.41%. The results for '22 were in line with market expectations. Due to the decline in terminal demand due to the pandemic, the continued rise in palm oil prices caused losses on the profit side.

Baking oils and fats were slightly damaged, and frozen dough and imported dairy products continued to grow. Looking at the product side: in '22, the main business baking grease achieved revenue of 1,539 billion yuan (-8.91%). The slight decline in revenue was mainly due to the impact of the epidemic on offline consumption and a decrease in terminal demand; whipped cream achieved revenue of 510 million yuan (+6.90%); dairy revenue of 593 million yuan (+18.05%); frozen dough revenue was 196 million yuan (+10.35%); revenue from fillings was 140 million yuan (-12.88%).

Distribution channels declined slightly, and direct sales channels continued to grow

Looking at each channel, the company's channel structure remained stable, with the dealer channel achieving revenue of 1,587 billion yuan (-8.01%); the direct channel achieved revenue of 1,267 billion yuan (+11.02%). Among them, the slight decline in the share of dealer channel revenue is mainly due to the fact that dealers mainly operate small and medium-sized customers, which have been greatly affected by the epidemic.

Gross margin was heavily pressured by the upward pressure of raw materials. Net interest rates declined, and the company's gross margin in 2022 was 21.73% (-9.39pct). Among them, the gross margin of baking grease, whipped cream, dairy products, frozen dough and fillings decreased by 11.01 pct, 8.31 pct, 4.08 pct, 15.56 pct, and 18.03 pct respectively.

The decline in gross margin was mainly due to the sharp rise in prices of raw materials such as palm oil due to a combination of factors such as lack of work in production areas and changes in export policies, and gross margin was seriously damaged. As a result, net interest rates declined somewhat, reaching 5.61% (-7.24pct) in '22.

Performance was damaged in '22, but costs declined in '23 and demand rose. We are optimistic that the company's subsequent performance will continue to recover in '22. Due to the impact of the epidemic and costs, the company's performance was seriously damaged, but with the recovery in demand and the decline in palm oil prices in '23, the company's performance is expected to continue to improve.

1) Revenue side: The production capacity of frozen dough is expected to double when Sam's demand for bagel products rises rapidly in '23; the production capacity of frozen dough is expected to double under Sam's rapid rise in demand for bagel products in '23. Currently, the company's frozen dough production capacity is 12,000 tons under construction, doubling post-production capacity within the year compared to now, driving rapid growth in performance. At the same time, the release of bagel products has brought about a new increase. Therefore, we expect the frozen dough business to achieve revenue of about 4-5 billion yuan in 23; at the same time, with the upgrading of the cream industry, demand for whipped cream and imported dairy products Fast upgrade, medium light The production capacity of cream is under construction at 20,000 tons. The promotion of new products is driving the growth of the company's business. As a result, we expect the revenue growth rate of whipped cream to increase by more than 30%. The company's revenue for January/February 2023 is expected to increase 6.5% year-on-year, and marginal improvement is obvious.

2) Profit side: Considering the current gradual balance between supply and demand for raw materials such as palm oil, etc., prices will fall somewhat year-on-year, which is conducive to the rapid recovery and improvement of the company's gross margin. We are optimistic that the company's performance will continue to improve and recover due to rising demand and falling costs in 23 years.

Adjust the previous profit forecast and raise it to the “buy” rating.

Considering the severe damage to performance in '22 and significant marginal improvement in '23, we adjusted our previous profit forecasts. We forecast revenue for 2023-2025 to be 3840, 47.87, and 5.868 billion yuan respectively, with year-on-year increases of 34.21%, 24.65%, and 22.58% respectively; Guimu's net profit was 388, 521, and 667 million yuan respectively, with year-on-year increases of 142%, 34% and 28%, respectively. EPS for 23-25 is expected to be 0.91, 1.22, and 1.56 yuan, respectively, and the corresponding PE is 27.70, 20.62, and 16.11 times, respectively. Based on the average valuation of the industry, we gave 35 times PE for 23 years. There is still room for the current market capitalization. Upgraded to the “buy” rating and recommended it!

Risk warning: raw material prices are rising; terminal demand is weak; production capacity release falls short of expectations.