Incidents:

On April 27, the company announced its 2022 annual report and 2023 quarterly report. In 2022, we achieved revenue of 1.4 billion yuan, +9.32% YoY; net profit attributable to mother -0.19 billion yuan, -407.82% YoY; net profit not attributable to mother -0.213 billion yuan.

23Q1 achieved revenue of 0.415 billion yuan, +11.38% year over year; net profit to mother 0.012 billion yuan, +43.22% year over year; net profit after deducting non-return to mother -0.009 billion yuan, -254.39% year over year.

Revenue is growing steadily, and the increase in the share of other categories is expected to create a second curve:

In 2022, the company achieved revenue of 1.4 billion yuan, +9.32% year over year; 23Q1 achieved revenue of 0.415 billion yuan, +11.38% year over year. At the product level, the company has built a “red jujube+healthy fresh food” product matrix. In 2022, the jujube category achieved revenue of 0.955 billion yuan, compared to -2.98%. The company has established an absolute voice in the high-end jujube sector, and is expected to expand further in scale as demand for gifts recovers. Other categories achieved revenue of 0.303 billion yuan, +40.14% over the same period, accounting for an increase of 4.77pct to 21.67%. Along with the strength of products such as Red Xiaopai, Dou Feifei, and Vc Jujube, it is expected to further enrich the product matrix. At the channel level, the company's specialty stores accounted for 24.94% of revenue in 2022. At the end of 2022, the company had 171 direct stores and 258 franchise stores. The company is positioned as a high-end red jujube. It needs to rely on the store's high-quality image and service experience to provide added value for high-end products, and will also determine the direction of store development in the future. E-commerce accounts for 37.43% of revenue, mainly covering mainstream platforms such as Tmall and JD, and the Douyin channel will be further strengthened in 2023. The company mainly focuses on distribution, supplemented by direct management. The distribution channels cover a wide range of KA, distribution and e-commerce warehousing channels. At the end of 2022, the company had 834 dealers, a net increase of 131.

The cost of red dates has declined, and the month-on-month improvement in profitability is clear:

In 2022, the company's gross profit margin was 22.79%, year-on-year -3.28pct, 23Q1 gross profit margin 26.71%, up 3.92 pcts month-on-month. Q4 is the company's centralized jujube procurement season. 21Q4 jujube prices increased significantly. The average price of 21Q4 jujube futures was 15,610 yuan/ton, +57.93% year-on-year, affecting profit performance in 2022. Jujube production increased in 2022, market liquidity was poor, and prices continued to decline. The 22Q4 jujube futures price returned to 10,973 yuan/ton, or -29.71% year-on-year. The company calculated an inventory impairment loss of 56.51 million yuan, which affected profit performance in the short term, but it is expected to drive profit recovery and improvement in 2023. The company's sales expenses rate in 2022 was 22.53%, +3.63pct year on year, 19.77% in 23Q1, and -1.05pct year on year, which remained relatively stable. Profits in 2022 were under pressure, with a net interest rate of -14.51%, and a clear month-on-month improvement in 23Q1, achieving a net interest rate of 2.74%. Against the backdrop of falling costs, I am optimistic about the company's potential to improve profitability.

Expanding the upward development of the snack food category, omni-channel efforts can be expected in the future:

I really think your core business in the past was jujube products. In the future, you will further expand the snack food category and build a second product curve. Red Xiaopai, the core growth product in 2023. According to Tmall flagship store data, 22H2 sales exceeded 57 million, and is expected to maintain a good sales situation in the context of 23Q1 omni-channel growth. In line with the rapid development trend of snack store channels, the company has reached cooperation with snack specialty stores that are busy with snacks, which is expected to contribute to the increase in offline revenue. The company's product innovation and channel expansion are at an inflection point in revenue. We are optimistic about the company's future development potential.

Investment advice:

We expect the company's revenue growth rates to be 21.58%, 18.93%, and 17.25% respectively in 2023-2025, and the net profit growth rates will turn into profit, 102.19%, and 51.62%, respectively. I am optimistic about the marginal improvements brought about by the company's expansion of new categories and channels. The 6-month target price is 10.75 yuan, which is equivalent to 3.4X PS in 2023.

Risk warning: The price of raw materials has risen sharply, the promotion of new products falls short of expectations, channel expansion falls short of expectations, and food safety issues.