Core views

In a business environment where the pace of recovery in market demand in the 23Q4 market was relatively steady, the company's overall revenue grew slightly. Looking at the subregions, sales in the Northeast and North China markets, where the company is more mature, decreased by 3.13% and 9.49%, respectively. Among other regions, the Southwest and Northwest markets performed relatively well, while sales in East China/Central China/South China declined year-on-year. Among them, the South China market performed relatively poorly. In the future, the company will also continue to strengthen research and development of new products, cooperate with production capacity construction and multi-channel layout, and enhance market service capabilities. We look forward to further improvements on the company's sales side after market demand picks up in the future. In terms of profit, the company's 23Q4 gross margin declined year-on-year due to factors such as high return rates at the beginning of the launch of new products and high amortization of expenses associated with the new production capacity climbing phase, putting pressure on the profit-side performance.

occurrences

The company announced its 2023 annual report:

During the reporting period, the company achieved revenue of 6.759 billion yuan, a year-on-year increase of 1.08%; net profit to mother of 574 million yuan, a year-on-year decrease of 10.29%; net profit after deducting 552 million yuan, a year-on-year decrease of 12.31%.

Q4 In a single quarter, the company expects to achieve revenue of 1,692 billion yuan, a year-on-year increase of 2.03%; net profit to mother of 115 million yuan, a year-on-year decrease of 23.50%; net profit after deduction of 108 million yuan to mother, a year-on-year decrease of 23.72%.

Brief review

Market demand recovered weakly, and the revenue side achieved a slight increase

In the 23Q4 business environment where the pace of market demand recovery is relatively stable, the overall revenue side of the company achieved slight growth. Looking at the subregions, sales in the more mature Northeast (accounting for 38.07%) and North China (accounting for 21.34%) markets fell by 3.13% and 9.49%, respectively. Among other regions, the Southwest (accounting for 12.02%) and Northwest (accounting for 6.73%) markets performed relatively well, with corresponding regional sales increasing by 2.93% and 6.24%, respectively; while sales in East China (accounting for 30.46%) /Central China (2.58%) /South China (accounting for 1.97%) decreased by 1.31%/18.60%/76.57%, respectively. The South China market performed relatively poorly. In the future, the company will also continue to strengthen research and development of new products, cooperate with production capacity construction and multi-channel layout, and enhance market service capabilities. We look forward to further improvements on the company's sales side after market demand picks up in the future. In terms of the number of dealers, as of the end of '23, the company had 985 dealers, a net decrease of 3 compared to the end of 23Q3, and remained stable.

Gross margin declined year-on-year, putting pressure on the profit side

The company's 23Q4 gross margin was 21.24%, down 2.99 pcts year on year. Against the backdrop of weak demand recovery, it is expected to be mainly affected by factors such as high return rates in the early stages of new product launch and high amortization of expenses related to the climbing phase of new production capacity. In terms of expenses, the year-on-year changes in the company's 23Q4 sales/management/R&D/finance rates were +0.05/-0.44/ -0.01/+0.11pcts, respectively, and the overall rate declined slightly. Ultimately, the company's 23Q4 net profit margin fell 2.27pcts to 6.78% year on year, and pressure on the margin side caused the company's profitability to decline.

Improve the national layout and wait for the demand side to pick up

In recent years, the company has been committed to improving the national market layout, speeding up channel refinement and sinking work in mature markets such as Northeast China and North China, strengthening the development of two major potential new markets in East China and South China, and continuously exploring market potential. In terms of production capacity, by the end of '23, the company had a total of 22 production bases (with a total production capacity of about 503,000 tons) and 5 base projects under construction (total production capacity of about 224,000 tons). The orderly progress of new production capacity construction will help improve the company's market service efficiency, further develop the scale effect advantages on the production side, and expand market share. Judging from market demand, the current overall consumer demand is still in the gradual recovery stage. The company is also responding positively to changes in the market business environment, strengthening the development and promotion of new products, and increasing online and offline multi-channel layout to meet the diversified and convenient needs of consumers. If the demand side gradually improves in the future, the company's operating efficiency is expected to improve further, which in turn will drive a recovery in performance on the performance side.

Profit forecast:

We expect that in 2024-2026, the company will achieve revenue of 73.62, 79.49, and 8.507 billion yuan, and net profit to mother of 634, 7.21, and 794 million yuan, corresponding EPS of 0.40, 0.45, and 0.50 yuan/share.

Risk warning:

1) The risk that market expansion falls short of expectations: The company had good market development results in Northeast China, East China, Southwest China and other places in the early stages. Later, when developing more competitive markets in South China and other industries, there was stronger market penetration resistance. If the company was unable to find effective countermeasures, it would adversely affect the company's long-term growth space judgment. 2) Risk of rising raw material costs: Although prices of oils and fats began to gradually decline steadily in the second half of '22, price fluctuations are more difficult to predict due to the strong bulk properties of raw materials such as oils and fats. If the prices of raw materials rise further, it will put pressure on the company's performance.

3) Risk of declining product competitiveness: The bakery industry has many product categories and rapid iterations. The company continuously strengthens the development and promotion of new products to adapt to current changing consumer habits and consumption trends. If it is not possible to keep up with changes in consumer demand in a timely manner in the future, it will adversely affect the company's business growth.