Incidents:

The company released its 2023 three-quarter report. In the first three quarters, it achieved revenue of 1,091 billion yuan, +11.89% year-on-year, net profit of 41 million yuan, net profit of 41 million yuan, and net profit from non-return of net income of 55 million yuan.

Product channels resonate, contributing to revenue growth:

The company achieved revenue of 1,091 billion yuan in the first three quarters, +11.89% year-on-year, of which 23Q3 achieved revenue of 390 million yuan, +8.63% year-on-year. The company expanded snack products such as red dates in addition to the traditional red dates category, thereby expanding channels such as snack stores. Currently, Red Xiaopai's monthly sales have broken through month by month, and snack shops have cooperated with 18 systems, which has basically achieved full coverage of large-scale systems, and the monthly sales scale continues to rise. At the same time, it actively lays out Douyin channels to expand the breadth of channels while also forming a product promotion window, which plays an active role in promoting the company's category expansion period.

The limited scale effect drags down performance, and the expansion phase increases cost investment in the short term:

The company lost 40.84 million yuan in net profit in the first three quarters, of which 23Q3 lost 22.6 million yuan.

The scale effect of the main business is limited, and no profit has been achieved yet. Combined with the financial management part, there have been some fluctuations in profit performance. Q3 gross margin was +4.81 pct to 29.42%, mainly due to the reduction in jujube costs in '23. The sales expense ratio is +1.44pct to 25.45%. It is expected that during the channel expansion stage, cost investment will increase in the short term. Q3 Overall net interest rate was +9.91 pct to -6.01% year on year, and profitability improved month-on-month.

Expand product channels, refine organizational structures, and refine operations:

The company expanded the zero food category, and then expanded the channel layout such as snack stores and CVS. Currently, the scale of the Red Minions is climbing month by month, and the second curve is growing and maturing. At the same time, new products such as milk jujube, red dates, and black sesame pills are gradually being marketed, expanding the product matrix, and the future market space is expected to open up. The organizational structure has been smoothly adjusted, and has been subdivided into 4 first-level war zones and multiple second-level war zones. The overall channel strength is expected to improve with refined channel operation in the future.

Investment advice:

We expect the company's revenue to reach 16.26, 19.44, and 2,289 million yuan respectively from 2023-2025, and net profit from the mother to reach 0.19, 0.47, and 94 million yuan respectively. Given a buy-A investment rating, the target price for 6 months is 10.09 yuan, corresponding to 2.8X PS in 2023.

Risk warning: sharp rise in raw material prices, new product promotion falling short of expectations, channel expansion falling short of expectations, food safety issues.