3Q23's profits meet market expectations

1Q-3Q23 realized operating income of 5.066 billion yuan, year-on-year + 0.77%, net profit of 459 million yuan, year-on-year-6.24%, non-net profit of 443 million yuan, year-on-year-9.01%. 3Q23 realized operating income of 1.86 billion yuan, year-on-year + 2.08%, net profit of 168 million yuan, year-on-year + 26.81%, and non-return net profit of 162 million yuan, + 11.11%.

Trend of development

3Q23 income showed a weak growth due to the impact of waterlogging and channel diversion in some areas. The 3Q23 income of the company is 1.86 billion yuan. According to the company's operating data announcement, the relatively mature market of 3Q23 includes the Northeast / North China / Northwest / Southwest region with an income of 8.71 million yuan, which is-0.7%, 2.5%, 4.1% and 1.7% compared with the same period last year. We expect that there will be a lot of precipitation in parts of North and Northeast China from July to August, and some floods will affect distribution and normal operation. The income of 3Q23 East China / South China / Central China region is 1.63 / 57 million yuan, compared with the same period last year. The growth rate of East China market slows down. We expect that the growth rate of South China market is related to the withdrawal of competitive brand Binburg Group, and the acceleration of Central China market growth is related to the establishment of cooperation between the company and some snack discount channels.

3Q23 net interest rate is about 9%, month-on-month / year-on-year is about + 0.2/+1.8pct. 1) 3Q23 gross profit margin month-on-month improvement is relatively limited, 3Q23 gross profit margin month-on-month in May-June 2023 some raw materials began to enter the new procurement season, flour prices basically unchanged slightly increase, palm oil year-on-year decline but soybean oil prices, sugar prices rise month-on-month, comprehensive 3Q23 gross profit margin month-on-month improvement is relatively limited.

2) the 3Q23 sales expense rate is 7.7%, and the month-on-month / year-on-year ratio is about-0.4/-0.4pct respectively.

Looking forward to 4Q23 and 2024: in the second half of the year, the company plans to continue to adjust its product structure to adapt to the current changes in consumer demand, and will continue to strengthen regional channel layout, such as continuing to increase the layout of emerging channels in Central China and other regions. We expect 4Q23 growth to accelerate. In addition, the company plans to gradually put into production the new plant in Shenyang and the Quanzhou plant at the end of 2023 and the beginning of 2024.

Profit forecast and valuation

We keep our profit forecast for 2023 unchanged. Considering that there are still new production capacity in 2024 and a relatively weak recovery in revenue growth, we have lowered the company's 2024 profit by 5.9% to 704 million yuan. The current stock price corresponds to 21,7max and 19.8 times of 23max in 24 years. Taking into account the downward adjustment in the profit forecast and the decline in the valuation of the food sector, we lowered the target price by 16% to 10.5 yuan per share, and the target price corresponding to the target price for 24 years is 23.8 times higher than the current price. The target price is 20.4% higher than the current price, maintaining an industry rating that outperforms.

Risk

Regional channel layout is not as expected, food safety risk