We have been deeply involved in the industry for more than 20 years and have become a leader in the short-run bread industry. The company was founded in 1997 in Shenyang and specializes in products such as bread and pastries. The core product is short-shelf bread. After more than 20 years of continuous development, it has now grown into a national short-warranty bread leader. As of 2023H1, 21 production bases have been put into operation across the country, and 6 production bases are under construction. Revenue increased from $3.305 billion to $6.686 billion in 2016-2022, with a CAGR of 12.46%.

The scale of the baking industry is growing steadily, and channel chains are expected to accelerate the concentration of the upstream baking industry. Bakery products can meet modern fast-paced lifestyles. The trend of snacks and meals is prominent, and rising residents' income levels will drive an increase in demand for bakery products. China's per capita baking consumption and sales are low compared to developed countries and the world average, and there is room for improvement. From 2018 to 2022, the market size of China's baking industry increased from 195.61 billion yuan to 285.3 billion yuan, and is expected to reach 351.8 billion yuan in 2025. In recent years, the chain retail industry in China has been growing well, helping to reduce the expansion costs of upstream enterprises. More efficient and cost-effective enterprises will gain more market share, and industry concentration is expected to increase.

The Northeast base market has significant advantages, and other markets have huge potential for growth. Currently, the Northeast and North China markets are relatively mature, leading other markets in terms of revenue scale and profit level. In 2022, the per capita consumption in Northeast China and North China was 43.76/13.21 yuan, respectively, and the per capita sales in East China/Southwest/Northwest/South China/Central China were 6.69/6.64/7.01/4.15/1.51 yuan respectively. Considering that the urban population and per capita GDP of other regions are generally higher than those in Northeast China, the growth potential is huge. As the nationwide production capacity layout continues to advance, these regions are expected to expand rapidly with mature operation and management experience and brand effects.

An efficient logistics system establishes core barriers. The company uses a logistics system that mainly entrusts logistics to third parties and is supported by setting up its own transportation fleet. Third-party logistics buses distribute peach and plum products. The company has strong control over the logistics system and uses digital technology to improve distribution efficiency. In 2009, the PDA distribution system was established and continuously upgraded, effectively reducing delivery time, thus ensuring the freshness of bread, improving product quality, and reducing return rates. Currently, the company's daily delivery ratio is over 50%, and the average return rate is lower than the industry average.

Investment advice: We expect the company's revenue for 2023-2025 to be 67.62/72.774/7.966 billion yuan, respectively, up 1.13%/7.58%/9.52% year on year. The company is expected to achieve net profit of 575/6.12/686 million yuan in 2023-2025, up -10.20%/6.55%/11.93% year-on-year respectively, corresponding to a PE of 19.3/18.1/16.2X for 23-25, maintaining the “recommended” rating.

Risk warning: raw material prices are rising, industry competition is intensifying, demand for bread falls short of expectations, etc.