Core views

Along with the gradual recovery of the domestic economy, the company's overall business environment showed a recovery trend, but overall revenue declined year-on-year due to factors such as falling prices of major products along with raw material prices and intensifying market competition. By business, the company's sales in the kitchen food business fell 6.04% year on year in '23, and the recovery in demand in the restaurant market is quite obvious. At the same time, the company's feed ingredients and oil technology business revenue increased 3.69% year on year. Among them, the price performance of feed ingredients products such as soybean meal was relatively weak, and volume growth was the main source of growth.

In terms of profit, in the face of declining raw material costs, the decline in gross margin of kitchen food is mainly due to a decline in the performance of the flour business sold through catering and food industry channels in the kitchen food business, while retail channel profits have improved, and overall rates are relatively stable.

occurrences

The company released its 2023 annual report:

During the reporting period, the company achieved revenue of 251,524 billion yuan, a year-on-year decrease of 2.32%; net profit to mother was 2,848 billion yuan, a year-on-year decrease of 5.43%; net profit after deducting non-return to mother was 1,321 billion yuan, a year-on-year decrease of 58.50%.

Q4 In a single quarter, the company achieved revenue of 63.01 billion yuan, down 9.54% year on year; net profit to mother of 719 million yuan, up 9.24% year on year; net profit after deducting non-return to mother was 412 million yuan, down 55.45% year on year.

Brief review

The recovery in demand led to an increase in sales. The decline in revenue due to falling prices accompanied the gradual recovery of the domestic economy. The company's overall business environment showed a recovery trend, but overall revenue declined year-on-year due to factors such as falling prices of major products along with falling raw material prices and increased market competition. By business, sales in the company's kitchen food business in '23 (accounting for 58.70%) fell 6.04% year on year, and corresponding sales volume/average price changes were 8.23%/-13.18%, respectively. Among them, the recovery in demand in the restaurant market was quite obvious. At the same time, revenue from the company's feed ingredients and oil technology business (accounting for 40.65%) increased 3.69% year on year, corresponding to changes in sales volume/average price was 13.77%/-8.86%, respectively. Among them, the feed business was affected by continued losses from downstream farming companies, and the price performance of soybean meal and other products was relatively weak. Furthermore, in terms of channel construction, the company continues to promote channel sinking efforts, actively develop empty markets, and improve the sales network layout. By the end of '23, the company had 8,722 dealers, a net increase of 954 over '22.

The profitability of kitchen food declined, and the feed ingredients business improved. The company's 23Q4 gross margin was 5.12%, a slight increase of 0.01 pcts over the previous year, and remained stable.

In terms of expenses, the year-on-year changes in the company's 23Q4 sales/management/R&D/finance rates were +0.35/+0.17/+0.02/-0.07pcts, respectively, and the overall rate for the single quarter rose slightly. Furthermore, due to changes in derivatives and structured deposits that did not fully meet hedging requirements, the company's 23Q4 investment income/fair value change profit and loss accounted for -0.63/+1.63 pcts, respectively. Ultimately, the company's 23Q4 net interest rate to mother was 1.14%, an increase of 0.20 pcts year on year. Looking at the full year, the company's gross margin was 4.83%, down 0.84 pcts year on year. Among them, the gross margin of the kitchen food and feed ingredients and oil technology business decreased by 0.27/1.62 pcts year on year, respectively. In the face of declining raw material costs, the decline in the gross margin of kitchen food is mainly due to a sharp decline in the performance of the flour business sold through catering and food industry channels in the kitchen food business, while the profit situation of retail channels has improved. In the feed ingredients business, press profits rose a lot year-on-year in 23H2, especially in the third quarter due to a rebound in the prices of soybean meal and other products. In terms of expenses, the year-on-year changes in the company's 23-year sales/management/R&D/finance rates were +0.09/+0.12/+0.01/-0.25pcts, respectively. The overall rate rate was relatively stable. Among them, the financial rate declined a lot mainly due to the increase in net interest income and exchange income. In addition, the share of the company's investment income and revenue corresponding to fair value changes increased by 0.48/0.28 pcts, respectively. Combined, the company's net interest rate to mother in '23 was 1.13 pcts, a year-on-year decrease of 0.04 pcts, and profitability remained stable.

Deepen the main business to consolidate advantages, and the new business layout helps long-term development

As a leading enterprise in the domestic grain and oil sector, the company has achieved multi-category coverage and multi-channel penetration through a comprehensive brand matrix, and already has a high market influence. In terms of products, as consumers' awareness of health increases, the company innovates and upgrades traditional rice and noodle oil products and launches differentiated, healthy and high-end new products to meet diverse needs. At the same time, in addition to the main grain and oil business, the company relied on its own advantages to gradually expand into new businesses such as condiments and Chinese cuisine in the food sector, and continuously expand its business categories. Among them, the central kitchen project is the company's key business segment in recent years. Through the operation model of the Food Industry Ecological Park, it realizes resource sharing and cooperation between upstream and downstream enterprises in the industrial chain, leverages scale advantages, and helps the industry develop. In the medium to long term, with the advantages of the industrial chain accumulated over many years, the company is still expected to maintain and enhance its market position in the kitchen food sector. The collaborative and complementary new business layout will also help the company achieve steady growth in operations.

Profit forecast:

We expect the company to achieve revenue of 2756, 2992, and 318.9 billion yuan in 2024-2026, and net profit to mother of 37.83, 47.65, and 5.334 billion yuan, corresponding EPS of 0.70, 0.88, and 0.98 yuan/share. If equity incentive costs are restored, net profit due to mother is expected to be 38.64, 48.05, and 5.345 billion yuan in 2024-2026, corresponding EPS of 0.71, 0.89, and 0.98 yuan/share.

Risk warning:

1) Risk of rising prices of raw materials such as soybeans: Direct materials account for a relatively high proportion of production costs in the condiment industry. Prices of agricultural products such as soybeans have fluctuated greatly in recent years, which has had a great impact on the company's profits. For example, subsequent raw material prices will continue to rise further, which will adversely affect the company's performance. 2) Food safety risks: Condiments are frequently used in production and life, and are widely used. They are directly related to people's dietary health. If a related food safety incident occurs, it will reduce the public's trust in the company's products and have a significant adverse impact on the company's business operations. 3) Risk that demand recovery falls short of expectations: Currently, the company's operations are still constrained by the recovery process of downstream demand. If demand recovery falls short of expectations, the company's business performance will still face some pressure in the short term.