Core views

Due to the Mid-Autumn Festival of 23 at the end of the third quarter, the confirmation of revenue from some of the company's mooncake products was delayed until the fourth quarter. The company actively adjusted its business strategy, relied on the influence of the “Wufangzhai” brand, to build a second sub-brand, “Jiahu Details”, and actively expand the non-rice dumpling business. It has cultivated many tens of millions of items such as eggs, rice balls, mung bean cake, and braised meat. Mooncakes already have a scale of more than 200 million, and salted duck eggs, mung bean cake, and rice balls are also expected to become the next big item over 100 million. The company focuses on quick-frozen and baking as its main products, creating a “breakfast scene” for daily sales. At the same time, it also explores a new business chain model around “one-stop solution to family breakfast dim sum plus seasonal souvenir gift needs” to broaden the chain development space, and the future is worth looking forward to.

occurrences

The company released its 2023 annual results report

The company expects revenue of 2,635 million yuan in 2023, +7.03% year over year; net profit to mother of 169 million, +23.10% year over year; deducted non-net profit of 144 million yuan, +26.34% year on year.

The company expects Q4 revenue of 220 million yuan, +10.66% year over year; net profit to mother of -72 million yuan, loss of 91 million yuan in the same period last year, a year-on-year loss of 0.19 million yuan; after deducting non-net profit of -87 million yuan, a loss of 109 million yuan for the same period last year, a year-on-year loss of 212 million yuan.

Brief review

Q4 Revenue growth rate is steady, profit and loss are reduced

Adhering to the purpose of “protecting and innovating Chinese cuisine”, the company strives to become a “leading Chinese festival food brand with glutinous rice food as the core”. On the one hand, it continues to improve “product power, channel power and communication power” to show consumers the brand value of “love Chinese flavor”, and on the other hand, it unswervingly promotes the “food+catering” two-wheel drive strategy to strengthen operation and management efficiency. The company gives full play to the influence of the “Wufangzhai” brand, breaks through traditional catering models, explores new development paths, and expands different consumption scenarios to obtain more space for development. The company's mooncakes exceed 200 million, and salted duck eggs, mung bean cake, and rice balls are also expected to become the next big item over 100 million.

Referring to the equity incentive plan, the company's equity incentive fee for 23 years was about 0.23 million yuan. After restoring the equity incentive fee, the company's net profit for 23 was 192 million yuan, an increase of 39.4% over the previous year, and the net interest rate to mother was 7.3%, an increase of 1.7 pcts over the previous year. The company's income tax in 2023 was about 41 million yuan, a year-on-year decrease of 36.7%, and the effective tax rate was about 19.5%. It mainly benefited from tax incentives in the Chengdu High-tech Zone and helped increase the company's profitability.

Expand the Japanese sales category and prepare for the Spring Festival gift box

The company continues to increase iterative innovation and channel marketing in the mooncake, baking, quick-frozen and egg categories. It has launched new products to enter the market in various categories such as Chinese pastries, prepared dishes, casual braised dishes, rice balls, etc., and determined that Chinese pastries will focus on developing with the four major products of “cake,” “bun,” “cake,” and “slices” as the second bakery brand “Jiahu Fine Point”. The frozen category is the strategic concept that focuses on creating the breakfast scene. Among the products sold daily by the company, many tens of millions of products have been cultivated, such as eggs, rice balls, mung bean cake, cooked and marinated flavors. Mooncakes are already worth more than 200 million, and salted duck eggs, mung bean cake, and rice balls are also expected to become the next big single item with a scale of over 100 million. In the 2024 sales season, the company mainly promotes poppy rice balls and specialty rice. It will launch two major holiday gift boxes, a cooked braised gift box and a raw cured meat gift box, which will also be complemented by rice gift boxes and baked goods to meet market demand.

Profit forecast and investment advice: The company is a leading enterprise in the traditional food zongzi industry and has strong brand awareness. The company is still in the process of increasing its market share, and capacity investment and the construction of smart parks are conducive to further growth in the company's revenue. Considering the weak consumer environment, we expect revenue for 2023-2025 to be 2,635/30.12/3.365 billion yuan, up 7%/14%/12% year on year, and net profit to mother of 1.69/2.10/246 million yuan, up 23%/24%/17% year on year, maintaining the “increase” rating.

Risk warning:

1. National expansion falls short of expected risk: The company's sales scope is mainly in East China, accounting for about 50%, while the revenue growth rate for markets outside East China is faster than the East China region. If the company's expansion in markets outside East China falls short of expectations, it may have a big impact on the company's revenue.

2. New product promotion fell short of expectations: The company tried to explore new opportunities in the fields of baking and quick-freezing, and launched a series of new products, but there is a big difference between the new product and the original rice dumpling product, as well as the large difference in consumer tastes and preferences, so the company's new product promotion may fall short of expectations.

3. Increased competition risks exceeding expectations: Increased competition on traditional seasonal food tracks such as rice dumplings, mooncakes, and pastries where the company is located will cause market expenses such as advertising and promotions to continue to increase, affecting corporate profit levels.