Incident: On October 26, the company released its three-quarter report for 2023. During the reporting period, the company achieved revenue/net profit from net profit/net profit from non-return net profit of 1885.22/21.29/909 billion yuan respectively, a year-on-year difference of +0.36%/-9.53%/-59.57%. In 2023Q3, the company achieved revenue/net profit from motherhood and net profit from net profit of 698.09/11.63/895 billion yuan respectively, with a year-on-year difference of +2.12%/+208.42%/+643.15%.

Benefiting from a recovery in downstream demand, Q3 performance resumed growth. On the revenue side, overall revenue for the first three quarters of 23 years increased slightly year-on-year (+0.36%). Looking at volume and price splitting, sales of kitchen food, feed ingredients, and grease technology products increased year-on-year, but the increase was partially offset by the decline in product prices. 23Q3 benefited from a recovery in downstream demand, resumed revenue growth (+2.12%), and led to a correction in revenue growth in the first three quarters of 23 years. On the profit side, net profit growth rate for the first three quarters of 23 years was -9.53%, and the decline in growth rate narrowed significantly from month to month (23H1 to -51.13%) due to the sharp year-on-year increase in 23Q3 performance (+208.42%). The sharp increase in 23Q3 performance is due to: (1) the sharp rise in the prices of major raw materials in 22Q3 dragged down the company's profit performance, causing a low base effect; (2) the 23Q3 company's overall gross margin rose significantly, driving the company's net profit to increase sharply year on year.

Gross margin improved significantly in 23Q3, mainly due to lower costs and a recovery in product prices. The gross margin for the first three quarters of 23 quarters/23Q3 was 4.74%/5.75%, respectively, -1.15pct/+2.72pct year-on-year respectively. The significant increase in gross margin in 23Q3 was mainly due to the improvement in company costs and the recovery in product prices. Looking at each sector, as stocks of high-priced wheat are digested, the cost of the kitchen food business has improved markedly, and the profitability of the flour business has been restored; the feed ingredients and oil technology business has benefited from the recovery in product prices since Q3, and profits have been restored. On the cost side, the fee rate for the first three quarters/23Q3 period of 23 was 3.94%/3.79%, compared to -0.21pct/-0.08pct compared to -0.21pct/-0.08pct, and operating efficiency improved slightly. The scale of various expenses invested in the first three quarters remained the same year on year, and the expense ratio was effectively diluted by sales growth.

Investment advice: Based on the business situation in the first three quarters, we slightly lowered the company's profit forecast. The company's net profit for the year 23 to 25 is estimated to be 28.94/39.52/5.323 billion yuan, or -3.89%/+36.54%/+34.71% year-on-year. In the future, the company's revenue is expected to resume steady growth, and net profit is expected to continue to pick up in the later stages.

Combining the company's scale advantage, brand effect and industry position. Maintain the “Overweight” rating.

Risk warning: weak consumer demand, rising costs exceeding expectations, food safety issues, etc.