On 2024 3rd and 29th, Zhongju Hi-Tech released the 2023 Annual Report and 2024 Restricted Stock Incentive Plan.
Key points of investment
Litigation and settlement to accrue liabilities, looking forward to management improvements
The company's total revenue in 2023 was 5.139 billion yuan (-4%), mainly due to a sharp reduction in real estate/pulley revenue, and net profit of 1,697 billion yuan (year-on-year change of loss to profit). The main reason was the settlement and withdrawal of joint lawsuits between the company and industry, and the impact of the anticipated liabilities calculated in 2022 this year. Among them, the 2023Q4 company's total revenue was 1,186 billion yuan (-14%), which is expected to be mainly affected by the painful period of the company's transformation, and net profit to mother was 2,969 billion yuan (turning a loss into a profit year on year). The company's gross margin in 2023 was 32.71% (+1pct), mainly due to a decrease in the purchase price of raw materials and optimization of the product structure. As the soybean cultivation area increases, the comprehensive raw material price is expected to remain stable. At the same time, the commissioning of equipment in the new production area will further reduce production costs, and the gross margin is expected to increase further; the sales cost rate/management fee ratio is 8.90%/7.34%, respectively, an increase of 0.04 pct/1pct. The new management will increase investment in product promotion and flatten the organizational structure. It is expected that in 2024, in addition to the increase in sales expenses, others Expenses have all been optimized; taken together, the company's net interest rate was 33.80% (year-on-year loss turned into profit).
Steady main business, key breakthroughs in catering channels
In 2023, Yummy Fresh's revenue was 4.932 billion yuan (-0.5%). By category, the revenue of soy sauce/chicken powder, cooking oil/ other products in 2023 was 30.28/6.76/4.46/ 716 million yuan, respectively, compared with 0.1%/13%/-11%/-7%, respectively. Soy sauce performance is steady, chicken extract chicken powder is growing significantly. The decline in edible oil revenue is mainly due to rising prices due to rising procurement costs of edible oil raw materials. Currently, Yangxi Phase III is progressing according to schedule, and the technical reform of the Zhongshan factory area is basically completed. Progress has been released steadily, providing a solid foundation for scale expansion. By channel, distribution/direct sales revenue in 2023 was 4.727/139 million yuan respectively, 0.1%/-17%. At the end of 2023, the number of dealers increased net from the beginning of the year by 81 to 2,084. The development rate of prefecture-level cities/districts and counties reached 94.36%/72.24%, increasing by 1 pct/4pct. The sinking of district and county market channels accelerated. Subsequent companies may use China Resources channel resources to enable the company's catering channel development, and the channel layout is further balanced. Looking at the subregions, the revenue of the east/southern/central western/northern regions in 2023 was 11.16/20.34/10.80/636 million yuan, respectively, compared with -1%/-0.3%/7%/-10%, respectively. The midwest gap is progressing faster. Subsequent companies will seize more northern markets and make up for weak regional construction.
Release equity incentive plans to stimulate organizational vitality
The company announced the 2024 stock incentive plan. It plans to grant no more than 14.388 million shares, accounting for 1.83% of the total share capital. The grant price is 14.19 yuan/share. The incentive targets are 329 people, including the company's directors, senior management, middle management and core personnel. The performance assessment targets set by the company are: revenue of not less than 12%/18%/48% year-on-year, respectively, operating profit margin of not less than 15%/16.5%/18%, ROE not less than 14%/15.5%/20%, and initial amortization expenses of 176 million yuan. The company fully mobilizes employees' enthusiasm through equity incentives, which is expected to further enhance the company's competitiveness.
Profit forecasting
The company issued a strategic planning plan, clarifying that Delicious Fresh's revenue target is 10 billion yuan and operating profit target is 1.5 billion yuan in 2026. With the rich product matrix/marketing structure reform/catering channel development, we are optimistic that the company will continue to release organizational vitality and further increase its market share. According to the annual report, EPS for 2024-2026 is expected to be 1.11/1.37/1.64 yuan respectively, and the current stock price corresponding to PE is 24/19/16 times, respectively, maintaining a “buy” investment rating.
Risk warning
Downward macroeconomic risks, increased industry competition, food and beverage recovery falling short of expectations, rising raw material prices, risk that equity incentive plans cannot be completed or fall short of expectations, and risks of reforms falling short of expectations.