The company released the 2023 performance report. Net profit in 2023 decreased 10.2% year on year, 2023 revenue of 6.76 billion yuan (YoY +1.13%), net profit to mother of 575 million yuan (YoY -10.2%), net profit of 5.52 (YoY -12.4%); corresponding to 4Q23 revenue of about 1.7 billion yuan (+2.2% YoY), 4Q23 net profit of about 115 million yuan (-23.1% YoY), 4Q23 deducted non-net profit of about RMB 108 million (YoY -23.9%), due to Demand in 4Q23 was relatively weak, market promotions increased, and depreciation increased in part of the 4Q production capacity release. The profit forecast for 2023 was slightly lower than market expectations.

Key points of interest

Revenue growth remained weak in 4Q23. According to the company's 2023 performance report, 4Q23 revenue was about 1.7 billion yuan, +2.2% year-on-year, and the recovery was still weak. According to data from the National Chain Store and Supermarket Information Network, the 4Q23 packaged bread industry and the GMV of the Taoli brand were -10.7% and -9.4%, respectively, and the demand for supermarket terminals was weak.

The 4Q23 net interest rate is lower. We expect it to be related to weaker demand rebates, increased trade-off, and increased factory depreciation. According to the company's 2023 performance report, the 4Q23 net interest rate is about 6.8%, which is at a low level. We anticipate that the main reasons include: 1) Channel rebates and sales discounts will increase when demand is weak. 2) We expect the relevant depreciation accruals to increase due to the commissioning of 4Q23's Shenyang replacement plant and the relocation of the Quanzhou factory.

Outlook 2024: The company plans to continue to adjust its product structure and lay out emerging channels to adapt to market changes, and we expect the company's revenue growth to accelerate in 2024. Cost side: According to the current raw material supply situation, we expect the company's flour and sugar raw material costs to remain stable in 2024, and fats are expected to decline slightly year-on-year. We expect that the relocation of 1H24 production capacity will still have some negative impact on the company's gross margin, and the company's gross margin is expected to gradually improve as 2H24 production capacity climbs.

Profit forecasting and valuation

Considering weak demand in 4Q23, increased market promotions and increased depreciation in production capacity, we lowered our 2023 profit by 10.5% to $575 million. Considering that 1H24 still had an increase in depreciation, we lowered our 24-year profit by 14.2% to 604 million yuan, and introduced a new net profit of 666 million yuan for 2025. The current stock price corresponds to nearly 17.6/15.9 times P/E in 24/25. We switched the valuation year to 2024, and at the same time considering the 24-year profit reduction and the current sector valuation decline, we lowered our target price by 28.6% to 7.5 yuan/share, which corresponds to 20/18 times P/E in 24/25. The current price has room to rise 13.1% from the target price, maintaining a superior industry rating.

risks

Regional channel layout falls short of expectations, emerging channels fall short of expectations, increased competition, and food safety risks.