Incident: Jinzai Foods released its 2023 annual report. In 2023, it achieved operating income of 2,065 billion yuan, an increase of 41.26% year on year; net profit to mother was 210 million yuan, up 68.17% year on year; net profit after deducting non-return to mother was 186 million yuan, an increase of 64.49% year on year. Among them, the fourth quarter achieved operating income of 572 million yuan, up 26.51% year on year; net profit to mother was 76 million yuan, up 122.61% year on year; net profit after deducting non-return to mother was 77 million yuan, up 153.92% year on year.

Large single products continue to be released, and the channel layout is progressing steadily. On the revenue side, the year-on-year growth rate of 23Q4 revenue slowed down compared to the previous three quarters; however, judging from the absolute value performance, the company's 23Q4 revenue increased slightly month-on-month, and the growth logic created by channel expansion+second growth curve remained unchanged. According to product regulations, the “big package+loose name” strategy is progressing smoothly. In 2023, large packaging/bulk packaging revenue maintained a high growth rate, accounting for more than 50% of total revenue. The increase in brand power helped accelerate year-on-year growth in revenue from small packages of the original major products. By product, fish products/soy products/poultry products/vegetable products achieved revenue of 12.91/2.17/4.52 billion yuan in 2023, respectively, +25.9%/+18.7%/+147.6%/+88.2% compared with the same period last year. Quail eggs continue to be released in poultry products, with annual revenue exceeding 300 million yuan, making them the company's second largest single product. Currently, quail eggs are mainly based on offline distribution standards. In '24, the company further promoted the layout of quantitative packaging and online channels, and built towards the target of 1 billion single-product products.

Cost pressure has been reduced, and profitability has been further improved. In terms of gross margin, the company's gross margin for the full year of 2023/23Q4 was 28.16%/32.61%, respectively; 23Q4 was +7.91 pcts year over year, and +5.81 pcts month over month. The main reason is that the purchase price of fish products has declined. The price of quail eggs is relatively low in 23Q4 (the average price of quail eggs for the whole of 2023/23Q4 was 5.98/5.31 yuan/kg, respectively), and the cost pressure has been alleviated; when the combined volume increase, the scale effect is evident, and gross margin has improved significantly. On the cost side, the sales expense ratio for the full year of 2023/23Q4 was 10.76%/8.98%, respectively; 23Q4 was -1.97pcts year-on-year, and -2.95pcts month-on-month. The main reason is that investment in terminal construction costs in the market has been reduced. Management expense rates for the full year of 2023/23Q4 were 4.04%/4.71%, respectively; 23Q4 was +1.75pcts year-on-year, 0.94pcts month-on-month. Taken together, the company's net interest rate for the full year of 2023/23Q4 was 10.15%/13.36%, respectively; 23Q4 was +5.77pcts year-on-year, and +4.56pcts month-on-month. The decline in raw material prices was compounded by cost reductions, and the company's profit level increased. Looking ahead to 24, the gross margin of the quail egg category will continue to improve in 23 years. The company promotes the layout of upstream suppliers around production bases, optimizes transportation costs, and further guarantees product quality. Advancing the construction of in vitro quail egg breeding bases is expected to smooth out fluctuations in raw material prices, and the gross margin of quail eggs is expected to improve further in '24.

Profit forecast, valuation and rating: We have basically kept the 2024-2025 net profit forecast unchanged. The net profit forecast for 2026 was 401 million yuan, corresponding EPS for 2024-2026 was 0.58/0.73/0.89 yuan, respectively. The corresponding P/E for the current stock price is 25/19/16 times, respectively. The company's channel expansion was smooth, individual product performance was good, and the “buy” rating was maintained.

Risk warning: fluctuating raw material costs; modern channel expansion falls short of expectations; food safety risks.