Matters:
The company released its 2023 annual report. In 2023, the company achieved operating income of 5.139 billion yuan, -3.78% year-on-year; net profit to mother was 1,697 billion yuan, reversing the year-on-year loss. Single Q4 achieved operating income of 1,186 billion yuan, -14.37% year-on-year; net profit to mother was 2,969 billion yuan, reversing year-on-year losses.
The company plans to launch a stock incentive plan to grant no more than 14.388 million restricted shares, accounting for 1.83% of the total share capital. The plan is to award 7 company executives, including the chairman and general manager, and 322 middle management personnel and core business executives at a price of 14.19 yuan/share. There are a total of 24-26 unlocking periods. The annual performance assessment goals are: based on 23 year revenue, the 24/25/26 revenue growth rate is not less than 12%/32%/95%, the 24/25/26 operating profit margin is not less than 15%/16.5%/18%, the 24/25/26 return on net assets is not less than 14%/15.5%/20%, and there is also a personal performance assessment.
The company announced the strategic planning plan for the next three years for the subsidiary Delicious Fresh Company. The target is that by 2026, the operating revenue target of Delicious Fresh Company is 10 billion yuan and the operating profit target is 1.5 billion yuan.
Commentary:
23Q4 operations were adjusted to focus more on 24 young players. The company's revenue in '23 was -3.8% YoY, of which Delicious Fresh was -0.4%, soy sauce remained flat year over year, and split volume and price were +1.9%/-1.7% YoY. The profit side considered litigation and settlement to recover the estimated debt of 2,926 billion, which ultimately turned a loss into a profit. The single Q4 report is under pressure. Revenue of -14.4% year-on-year was mainly due to internal adjustments or impact on business, while the profit side gross margin was 33.1%, +1.5pcts year over year, and the sales expense ratio was relatively stable, +0.7pcts year over year. However, due to compensation and consulting expenses for termination of labor relationships, the management fee ratio was +5.8pcts year over year, resulting in a single Q4 net interest rate of 5.2%, -5.9 pcts year over year, while Delicious Fresh's net profit margin was 10.9% year-on-year and -1.1 pcts year over year.
The incentive assessment was set up reasonably and the target guidelines were positive. Currently, morale is concentrated, and the battle is carried out lightly, and I am optimistic that the company will achieve it later. This equity incentive includes comprehensive personnel coverage, including state-owned assets, China Resources backgrounds, executives, and mid-level cadres, and fully mobilizes overall enthusiasm. In addition to revenue growth and personal performance, assessment indicators such as operating profit margin and ROE are also set, and the three goals need to be achieved at the same time, without distinguishing between target values and trigger values. The assessment ranges from easy to difficult. Seemingly strict, but it is also more likely to gather morale and drive. Third, the target guide is active, 24/25/26. The speed roughly corresponds to about 12%/18% 48%, that is, improving organizational strength in 24 years, Growth momentum was restored, and operating efficiency was further accelerated in 25 years, and the positive cycle was continued for 26 years, and mergers and acquisitions were considered, and finally doubled in 3 years, which basically corresponds to Delicious Fresh's three-year strategic plan (that is, operating income/operating profit reached 10/1.5 billion in 26 years, respectively).
In '24, the company focused on management transformation, enhanced development vitality and momentum, implemented and comprehensively implemented various strategic initiatives. It is expected that the three-year start will be successful and successfully meet the requirements of “preparing for the strategy”. In 24 years, the company focused on the main condiment business. The channel side focused on improving efficiency, establishing customer classification and classification management, integrating and dividing the product side, creating large national products, improving price management and promotion policies, improving the efficiency of the entire supply chain on the production side, reshaping R&D models and processes, and creating new sustainable products with reusable channels. On the other hand, carry out organizational restructuring work, establish mechanisms for training, promotion and elimination of key talents, optimize performance appraisal and merit evaluation plans, and fully implement market-oriented and highly flexible market-based mechanisms.
Overall, Q1 is expected to get off to a good start. Internal and external feedback from the company is good, and relevant channel policies and marketing adjustments are progressing in an orderly manner. We are optimistic that the company's revenue will return to a double-digit growth trajectory, while profits will continue to rise under management optimization+cost dividends, and eventually successfully achieve the equity incentive target.
Investment advice: Incentives to gather people's hearts, a key step in reform, raise the target price to 34.5 yuan, and maintain a “strong push” rating. In the previous review, we pointed out that the 24H1 stock price is expected to benefit from intensive catalytic events, current operating improvements+active guidance. Coupled with the subsequent or expected implementation of land asset divestment and recovery of minority shareholders' profits and losses, short-term company valuations are expected to rise further. In the long run, the company's first step is the smooth progress of internal reforms. Currently, the implementation of incentives is an important step. The second step is to move from the inside out from the second half of the year to next year, from channel investment and refined construction of a national network to continuing strength in new categories. The third step is to look at potential mergers and acquisitions contributions. At present, enterprises have entered substantial improvements, but the market still has some doubts about achieving long-term goals. If channel marketing and reporting data are continuously verified, confidence in “reinventing a new kitchen state” will further increase, and there will be more room for long-term imagination in the first tier of the benchmark industry. Based on the annual report, considering potential real estate disposal benefits, and not considering mergers and acquisitions contributions, we adjusted the 24-year EPS forecast of 1.04 yuan (previously forecast was 0.94 yuan), maintained the 25-year EPS forecast of 1.24 yuan, and introduced the 26-year EPS forecast of 1.65 yuan, corresponding to the P/E valuation of 25/21/16 times. Of these, net profit returned to the mother for 24/25 after excluding incentive fees and land revenue was approximately $7.9/1.03 billion, and added 30 times PE after adding back the incentive fee for 24 years, and added the corresponding target market after the real estate The value/target price is approximately 27 billion/34.5 yuan, respectively, maintaining a “strong recommendation” rating.
Risk warning: sluggish downstream demand; increased market competition; increased cost investment; food safety issues, etc.