Incident: On March 21, 2024, the company announced its 2023 results. In 2023, it achieved revenue of 4.872 billion yuan, a year-on-year increase of 5.2%, realized profit of 800 million yuan, an increase of 481.9% over the previous year, and adjusted net profit of 970 million yuan, an increase of 6.3% year-on-year. 2023H2 achieved revenue of 2,544 billion yuan, up 7.28% year on year, realized profit of 433 million yuan, up 1301.6% year on year, and realized adjusted profit of 473 million yuan, down 3.07% year on year.
Revenue from seasoned noodle products declined, and vegetable products increased year-on-year. 2023H2 flavored noodle products achieved revenue of 1,260 billion yuan, a year-on-year decrease of 8.48%, accounting for 49.53% of revenue, a year-on-year decrease of 8.53 pcts. Vegetable products achieved revenue of 1,185 billion yuan, up 35.35% year on year, accounting for 46.59% of revenue, up 9.66 pcts year on year. Soy products and others achieved revenue of 99 million yuan, a year-on-year decrease of 16.90%, accounting for 3.88% of revenue, a year-on-year decrease of 1.13 pcts.
Product structure optimization increases gross profit margin. In 2023, the company's gross margin was 47.7%, up 5.4 pcts year-on-year, mainly due to 1) product restructuring brought about an increase in average price; 2) a decrease in raw material prices; and 3) cost reduction through optimization of production processes. The gross margin of 2023H2 was 47.81%, up 1.51 pcts year on year. Among them, the gross margin of seasoned noodle products was 46.42%, up 1.59 pcts year on year, the gross margin of vegetable products was 50.89%, up 0.69 pcts year on year, and the gross margin of soy products and other products was 28.49%, down 6.04 pcts year on year.
Distribution and sales expenses rates have increased, and management expenses have declined. The distribution and sales expenses rate in 2023 was 16.6%, up 2.9 pcts year-on-year, mainly due to 1) the increase in employee benefit expenses due to the expansion of the sales team; 2) the increase in investment in promotion and advertising. The management fee rate in 2023 was 9.4%, a year-on-year decrease of 1 pcts, mainly due to a reduction in professional fees and listing expenses.
The adjusted net interest rate increased slightly year-on-year. The 2023 net margin was 18.07%, and the 2023H2 net margin was 17.03%. The adjusted net interest rate in 2023 was 19.92%, up 0.21pcts year on year, and the 2023H2 net interest rate was 18.6%, down 1.99 pcts year over year.
The product matrix continues to be rich, and we are optimistic about the subsequent performance of new products. In 2023, the company successively launched new products Overbearing Panda (expansion of spicy flavors in spicy strips), Konjac Vegetarian Belly Little Witch (konjac category innovation), and Crispy Hot Crisps (innovative spicy strip category, layout expansion track), further enriching the product matrix. The company has a deep channel base, and new products can quickly reach consumers through a huge number of terminal sales networks, and we are optimistic about subsequent performance. In recent years, new channels such as mass sales snack stores, O2O, and content e-commerce have developed rapidly. The company has actively embraced emerging channels. Currently, it has reached in-depth cooperation with major mass sales systems, and is expected to achieve rapid growth.
Investment advice: We expect the company's revenue for 2023-2025 to be 4.882/56.20/6.484 billion yuan, respectively, up 5.17%/15.37%/15.36% year on year. The company is expected to achieve net profit to mother of 888/10.17/1,182 billion yuan in 2023-2025, up 481.87%/15.55%/16.21%, respectively, corresponding to 23-25 PE of 15.2/13.1/11.3X respectively, maintaining the “recommended” rating.
Risk warning: New product performance falls short of expectations; channel expansion falls short of expectations; risk of rising raw material prices, etc.