Incidents:

The company announced that it achieved revenue of 5.114 billion yuan in 2022, +14.31% year on year, net profit of 7.58 million yuan, same period in 2021 - 13.84 million yuan, of which 4Q22 achieved revenue of 1,166 million yuan, -0.77% year on year, net profit of -0.6 billion yuan in the same period of 2021, and -25 billion yuan in the same period in 2021. 1Q23 achieved revenue of 1,415 million yuan, +33.23% year on year, and Guimu's net profit was 0.1 billion yuan, +10% year on year.

Key points of investment:

Revenue grew against the trend in 2022, and Q1 revenue in 2023 got off to a good start: 1) By category:

In 2022, the company achieved revenue of 48.28/2.01/085 billion yuan respectively, which was +18.97/35.36/- 18.77% over the previous year. In 2022, although the company's production and operation were affected by multiple adverse factors at home and abroad, such as the special domestic market environment and global inflation, operating income bucked the trend and continued the positive trend of operations. 2) In Q1 2023, the company achieved revenue of 1,415 billion yuan, an increase of 33.23% over the previous year. As the epidemic unraveled and the downstream consumption scenario gradually recovered, we expect the company's prepared food business to maintain relatively rapid growth in the first quarter.

The share of domestic business (mainland China, Hong Kong, Macao and Taiwan) increased steadily, and the performance of prepared dishes was impressive: 1) During the reporting period, the company's domestic market (mainland, Hong Kong, Macao and Taiwan) achieved revenue of 3.491 billion yuan, accounting for 68.26% of total revenue, compared to 59.76% in the same period in 2021, a further increase in share. The company's omni-channel marketing system in the domestic market has been continuously strengthened, and sales channels such as distribution, catering, supermarkets, and e-commerce have continued to be optimized. 2) The company's prepared food revenue in 2022 was 1,131 billion yuan, an increase of 34.48% over the previous year. We expect the growth of the company's prepared dishes to be mainly driven by the domestic market. During the reporting period, the company continued to gain strength in the prepared dish business, enhanced the suitability and professional ability of the sales team, and launched more than 20 new prepared dishes to the market, such as grilled fish with pineapple, minced golden mackerel, crispy shrimp with milk flavor, grilled anchovies, and seasoned bullfrog. Sales of prepared dishes increased steadily across all channels. In 2023, the company upgraded the small dragon grilled fish and released a new series of grilled Chinese prawns, which is expected to continue to lead the fishery prepared food circuit.

Inventory impairment narrowed year-on-year, and profitability increased: 1) In 2022, the company achieved a gross profit margin of 12.73%, a year-on-year ratio of -2.57 pct. The sales/management/R&D expenses ratio was 4.91%/2.72%/1.07%, respectively, and -0.13 pct/-0.52pct/+0.11pct compared to the previous year, achieving a net interest rate of -0.15%, +0.16pct over the previous year. During the reporting period, the company increased investment in R&D, upgraded product technology, taste, packaging, etc., and actively created large products. In 2022, the US subsidiary SSC lost 54.4485 million yuan, which dragged down the company's profitability. The company's inventory impairment in 2022 was -111 million yuan, accounting for 2.2% of revenue, which dragged down the company's profit level, but compared to asset impairment losses of -152 million yuan in 2021, accounting for 3.4% of revenue, the impairment situation has improved month-on-month.

2) The company's net profit was low in Q1 2023. We think it was still mainly due to the drag on overseas business. The transformation of the company will take time. In the long run, with the increase in the share of the company's domestic business and the steady growth of the prepared food business, the company's profitability is expected to improve markedly.

Profit forecast and investment rating: We expect the company's revenue for 2023-2025 to be 63.11/75.50/8.750 billion yuan, but considering that the company's overseas business is still uncertain, we lowered the company's profit forecast. It is estimated that the company's net profit to the mother for 2023-2025 will be 0.8/14/20 billion yuan, corresponding to PE 73/41/29 times, respectively. As the penetration rate of the prepared vegetable industry increases, the company is expected to stand out in the prepared food industry and maintain an “increase in holdings” rating based on the supply chain and product advantages established in the fishery prepared food industry, as well as the customer cooperation base accumulated in restaurants and supermarkets.

Risk warning: Risk caused by macroeconomic fluctuations, risk of food safety risk, risk of increased market competition, risk of fluctuations in overseas markets, risk of inventory impairment, risk of new product promotion not meeting expectations, risk of exchange rate fluctuations.