Incident: The company released its 2023 annual report. The company achieved revenue of 1,921 billion yuan in 2023, and realized net profit of 71 million yuan, +129.05% year over year. Of these, Q4 achieved revenue of 340 million yuan, an increase of 1.17% year on year, and realized net profit of -30 million yuan (same period last year - 54 million yuan).

Revenue side: The store opening target reached 70% + in '23, and the revenue side has rebounded year on year in 23Q4. The company's revenue for the full year of 2023 was 1,921 billion yuan, a slight decrease of 1.7% year on year. Corresponding to the year-on-year changes of -5.59%/-0.77%/-0.43%/1.17% in the Q1-4 revenue side, respectively. The downward trend in revenue gradually narrowed, and 23Q4 revenue rebounded year on year. 1) Revenue by product: Fresh goods/rice products in the core business achieved revenue of 1,413/358 million yuan respectively, accounting for 73.58%/18.62% respectively, with year-on-year changes of -0.9%/+5.3%, respectively. The construction of the company's core strategic product, shredded sauce duck in 2023, has seen results. The sales share increased from 3.14% to 11.70% at the beginning of the year; 2) From the store side, the number of stores in 2023 was 4,497, a net increase of 572 over the previous year (of which the core market Jiangxi/Guangdong/Zhejiang regions had a net increase of 194/128/25, and the non-core market had a net increase of 225), and the 2023 store opening target has tended to reach 70% + (meeting the 60% exercise ratio requirement). Single store revenue (fresh goods) reached 335,600 yuan, down 3.5% year on year; 3) From a regional perspective, the Jiangxi/Guangdong/Zhejiang regions each achieved revenue of 9.00/298/369 million yuan, a net change of 0.25%/-2.02%/-2.74%, accounting for 81.63% of total revenue.

Profit side: Gross margin rebounded steadily, overall cost control was rational, and profit also increased by 129.05%. The gross margin for the full year of 2023 was 29.06%, +0.9 pcts year on year, and the gross profit margin of the 23Q4 company was 30.69%, +6.39 pct year on year (23Q3 gross margin +3.87 pcts year on year). Mainly since Q2, the prices of the main raw materials for duck by-products have declined, and the gradual decline in production costs has led to a steady rise in gross margin. On the cost side, the company's sales and management expenses rates for the full year of 2023 were 14.89%/8.49%, respectively, with year-on-year changes of -1.44pct/0.50pct, respectively. Corresponding to 23Q4, the sales/management expense ratio changed year-on-year by 1.43 pct/0.78 pct, respectively. Among them, sales expenses dropped significantly, mainly due to the year-on-year reduction in the company's promotion and promotion costs/rental fees in the fee-controlled market, which changed by -24.51%/-37.27% year-on-year respectively in '23. The company's overall net profit margin for 23 years was +2.1pct year-on-year to 3.68%, and net profit to mother was +129.05% year-on-year to 71 million yuan.

24-year outlook: Continued store expansion in 24 years, plans to open 2,000 new stores, optimistic about profit elasticity brought about by falling costs. The company plans to open 2,000 new stores in 2024. The main direction is: deep cultivation of dominant old markets such as Jiangxi, Guangdong, Fujian, Liaoning, etc., and expansion of key new markets around newly built processing bases such as Shaanxi, Chongqing, Zhejiang, and Shandong. On the cost side, as of March 28, 2024, the main duck by-products, duck neck/duck feet/duck tongue/duck clavicle, remained relatively low compared to -63.89%/-32.81%/-34.93%/-19.54%/-19.90%, respectively. We expect the cost-side dividend in 2024 to continue to improve the company's gross profit/net margin side.

Profit forecast: We expect to achieve revenue of 23.60/28.26/3.52 billion yuan in 24-26, 22.90%/19.71%/15.10%, net profit to mother of 1.42/1.92/229 million yuan, +101.86%/34.98%/18.90%, EPS 0.26/0.35/0.41 yuan/share respectively, corresponding PE of 32.33/23.95/20.14 x, maintaining the “recommended” rating.

Risk warning: raw material costs are rising, store opening progress falls short of expectations, and single store repairs fall short of expectations