23Q4 revenue was +2.03% YoY. The company achieved revenue of 6.759 billion yuan in '23, +1.08% year on year, net profit of 574 million yuan, -10.29% year on year, net profit after deducting non-return to mother of 552 million yuan, -12.31% year over year, and net operating cash flow of 811 million yuan, -23.99% year over year, mainly due to fewer taxes and fees deferred payment in '22. Among them, Q4 revenue was 1,692 million yuan, +2.03% year on year, net profit attributable to mother was 115 million yuan, -23.5% year on year, and net profit without return to mother was 108 million yuan, or -23.72% year on year. In terms of profit distribution, the company plans to distribute a cash dividend of 1.8 yuan (tax included) for every 10 shares, with a dividend ratio of 50.16%.

Revenue from bread and pastries increased by 3.75% in 23Q4. By product, revenue from bread and pastries in 2023 was 6.532 billion yuan, +0.64% (Q4 +3.75%), mooncake revenue was 149 million yuan, +6.92% year over year, and revenue from rice dumplings was 0.17 million yuan, +27.82% year over year. Among them, new products such as staple biscuit bread and salted egg yolk doodle bread showed rapid growth.

Rising costs are putting pressure on gross margins. The company's gross profit margin for 23 years was 22.79%, -1.2pcts year on year, mainly due to ① the year-on-year increase in production costs due to the year-on-year increase in the price of some raw materials; ② production capacity was not fully released after some new construction projects were put into operation and the upfront costs were high. The sales expense ratio was 8.13%, +0.1 pcts year on year, management expense ratio 2.55%, +0.11 pcts year on year, financial expense ratio 0.38%, +0.21 pcts year on year, net interest rate 8.49%, and -1.08 pcts year on year. 23Q4 gross profit margin 21.24%, year-on-year -2.99pcts, sales expense ratio 8.39%, year-on-year +0.05pcts, management expense ratio 2.41%, year-on-year -0.45pcts, financial expense ratio 0.48%, year-on-year +0.11pcts, net profit margin 6.78%, year-on-year -2.27pcts.

Revenue in East China increased 6.63% in '23. Looking at the subregions in 2023, the revenue/year-on-year growth rate (Q4 growth rate) growth rates were: North China 1,522 million yuan/ 0% (Q4 was -9.49%), Northeast China 2,828 billion yuan/ -2.25% (Q4 was -3.13%), East China 2,094 million yuan/ 6.63% (Q4 was -1.31%), Central China 206 million yuan/ 1.98% (Q4 was -18.6%), Southwest China 763 million yuan/ -2.97% (Q4 was +2.93%), Northwest China 443 million yuan/ +2.91% (+6.24% in Q4), South China 457 million yuan/ -14.61% (-76.57% in Q4).

In 2023, there was a net increase of 33 dealers to 985, including a net increase of 20 to 83 in Northwest China, a net increase of 12 to 183 in North China, and a net decrease of 12 to 40 in South China.

Profit forecasting and valuation. We expect the company's 24-26 EPS to be 0.37/0.42/0.47 yuan respectively, and the relevant comparable company's PE in 2024 is 13-19 times. Considering that the company is an industry leader, as consumption gradually recovers and production capacity is gradually released, it is expected to resume higher growth in the future, give a certain valuation premium, and give 20-25 times PE in 2024, corresponding to a reasonable value range of 7.4-9.25 yuan, giving it a “superior to the market” rating.

Risk warning. Raw material prices fluctuate, production capacity release falls short of expectations, industry competition intensifies, etc.