2023H1 terminal demand is weak, squeezing business losses, digesting high-priced wheat inventory and other factors put pressure on the company's performance, profitability declined a lot, but at present, the company's external pressure has been gradually alleviated, we look forward to the second half of the company's performance will usher in a month-on-month improvement, while paying attention to the progress of the long-term business "central chef". Maintain the "overweight" rating.

2023H1 company income / homing net profit / deducting non-homing net profit respectively compared with the same period last year-0.6% Universe 51.1% Universe 99.4%.

2023H1 achieved revenue of 118.71 billion yuan, year-on-year-0.6%, return-to-mother net profit of 970 million yuan, year-on-year-51.1%, deducting non-return net profit of 14 million yuan,-99.4% year-on-year. Among them, 2023Q2 realized income of 57.67 billion yuan, year-on-year-8.4%, net profit of 110 million yuan, year-on-year-94.0%, deducting non-return net profit of-230 million yuan, year-on-year-114.2%.

Sales maintained steady growth, and the downward price of tons was a drag on income growth. From a product point of view, 1) Kitchen Food: 2023H1 achieved income of 73.52 billion yuan,-3.4% year-on-year, of which sales volume was + 9.5% year-on-year and average price was-11.8%. The steady growth in sales was mainly due to the gradual recovery of demand from downstream catering channels, and the decline in ton price was mainly due to the increase in the proportion of low-ton catering channel products and the decline in the price of flour and other products. 2) Feed raw materials and oil technology: 2023H1 achieved income of 44.46 billion yuan, + 4.7% compared with the same period last year, of which sales volume was + 16.1% and tonnage price was-9.9%. The increase in sales volume was mainly due to the increase in the company's oilseed crushing volume in the first half of the year, while the 2023H1 oilseed crushing volume also increased by 17.0%. The decline in ton price was mainly due to the decline in the price of products such as soybean meal. In addition, the company continues to promote channel expansion, as of 2023H1, the company has a total of 7840 dealers, 72 more than at the end of 2022.

Many reasons lead to more decline in gross profit margin and obvious pressure on profitability. 2023H1's gross profit margin also fell 3.4Pcts to 4.1% (Q2 also decreased 4.8Pcts to 3.1%), in which kitchen food / feed raw materials and oil technology gross profit margin respectively decreased 0.5/8.4Pcts, kitchen food gross profit margin decline mainly due to: 1) although the decline in raw material costs led to retail channel gross profit margin increased compared with the same period last year, but low gross margin catering channels accounted for an increase. 2) the prices of wheat, flour and by-products declined in the first half of the year, and the company's higher wheat inventory decreased in the early stage of digestion; the decline in the scientific and technological gross profit margin of feed raw materials and oils was mainly due to the fact that the cost of soybean was still at a high position in the first half of the year, but the prices of soybean oil and soybean meal of crushing products decreased significantly, resulting in crushing losses. The overall expense rate is relatively stable, 2023H1 sales expense rate / management expense rate / financial expense rate year-on-year + 0.0/+0.2/-0.5Pct (Q2 year-on-year + 0.3/+0.2/-0.6Pct), in which the decrease in financial expenses is mainly due to the increase in net interest income and exchange income. In addition, the asset impairment loss of 2023H1 decreased by 89.12 million yuan (Q2 decreased by 330 million yuan), and the investment income increased by 1.64 billion yuan (Q2 increased by 18.72 million yuan). The combination caused the 2023H1 homing net interest rate to fall by 0.8Pct to 0.8 per cent (Q2 by 2.8Pcts to 0.2 per cent).

The pressure is gradually relieved, looking forward to month-on-month improvement, and continue to promote the development of new business. 2023H1, the weak recovery of terminal demand, the depression of the downstream farming end, the high price inventory and other factors led to the significant pressure on the company's performance. At present, we believe that the external pressure faced by the company has been gradually alleviated, including 1) the food and beverage end demand continues to recover; 2) according to wind, soybean crushing profits have recovered and continued to rise since June 2023. 3) according to wind, wheat prices have stopped falling and rebounded since May 2023, which is beneficial for the company to digest high-priced inventory; 4) the price trend of major raw materials such as soybeans and palm oil is relatively stable, so we expect the company's performance to improve in the second half of the year. In addition, according to the company's 2022 annual report, the company will focus on the development of the central kitchen as the future business focus, combined with the company's leading advantages in grain, oil and rice noodle business, and build the park ecosystem. In 2022, it has been put into production in Hangzhou, Zhoukou and Chongqing, with long-term planning goals exceeding 100 (the company's 2023H1 performance exchange meeting). If it is successfully put into operation, it is expected to form an important growth curve in the long run.

Risk factors: food safety risk; risk of large fluctuations in raw material prices; increasing competition in the industry; company hedging risk; the company's new business expansion is not as expected.

Investment advice: taking into account the company's performance and the current external operating environment, adjust the company's 2023-2025 EPS forecast to 0.60 shock 1.00 pound 1.20 yuan (the original forecast is 0.94 pound 1.40 pound 1.64 yuan), many external factors significantly suppress the company's profits in 2023, we believe that as the pressure is gradually alleviated, the company's profits are expected to return to a reasonable level in 2024, which can better reflect the company's true profitability. With reference to comparable company condiment leader Haitian flavor industry and Hengshun vinegar industry (wind unanimously expects the current price to be 30 times and 44 times PE respectively in 2024), and taking into account the rapid growth and flexibility of the company's performance, it will give the company 40 times PE in 2024, corresponding to the target price of 40 yuan. Maintain the "overweight" rating.