Incidents:
Zhongju Hi-Tech released its 2023 annual report. The revenue for 2023 was 5.139 billion yuan, -3.78%; net profit to mother was 1,697 million yuan, which turned a loss into a profit; net profit after deducting non-return to mother was 524 million yuan, or -5.79% year-on-year. Delicious Fresh achieved revenue of 4.932 billion yuan, -0.45% year over year. Among them, 23Q4 revenue was 1.286 billion yuan, -14.37% year on year, net profit attributable to mother was 2,969 billion yuan, reversing the loss year on year; net profit after deducting non-return to mother was 61 million yuan, -60.02% year over year.
The 23Q4 reform period smoothly transitioned, and 2024 young people went to battle
By product, soy sauce/chicken powder, cooking oil/other products achieved revenue of 30.3/6.8/4.5/7.2 billion yuan respectively, compared to +0.1%/13.4%/-10.6%/-5.8%, 23Q4 achieved revenue of 6.7/1.9/1.1/150 million yuan respectively, compared to -17.3%/+18.1%/-21.1%. The decline in 23Q4 was mainly due to the steady progress of the company's organizational structure, marketing personnel adjustments, and competitive recruitment of all employees, resulting in a short period of revenue Fluctuations. Currently, new products such as premium soy sauce with 30% salt reduction, pickled cabbage and fish seasoning, Chubang mixed fresh oyster sauce, and Chubang's selected cooking wine are gradually being launched, and the product matrix continues to be rich. Looking at the subregion, the East/South/Central West/North division achieved revenue of 11.2/20.3/1.08/6.4 billion yuan in 2023, compared with -1.5%/-0.3%/+7.4%/-10.3%. The Midwest performed brilliantly, and the results of developing non-main sales areas were gradually showing. In 2023, the company added 81 new dealers, mainly in the Midwest and North, implemented the “one household, one policy”, and re-divided dealer resource attributes for targeted investment. The development rate of districts and prefecture-level cities reached 72.24%/94.36% at the end of 2023.
Decline in raw material costs+product structure optimization promoted gross margin of 32.7% year-on-year, +1.0pct year-on-year, of which Delicious Fresh achieved a gross profit margin of 32.7%, +1.9pct year over year, mainly due to declining raw material costs and product structure optimization, increasing the share of high-Maori chicken extract chicken powder (11.4% in 2022 to 13.3% in 2023, gross margin 42.0%), achieving a sales/management expense ratio of 8.9%/6.6%, a year-on-year flat/+0.5pct year-on-year increase in management expense ratio The main reason is the increase in expenses such as compensation for termination of labor relationships and consulting fees. Due to pending litigation resolution, the company transferred back the estimated liabilities of $2,925 billion, of which $1,747 billion of the estimated liabilities accrued in 23H1 and the estimated liabilities of $1,178 billion accrued in 2022 were included in non-operating income in 2023. The comprehensive net profit margin was 29.3%, +40.4 pct year on year, after deducting 9.1% of non-return net interest rate, and -1.3 pct year on year. 23Q4 achieved a gross profit margin of 33.1%, a year-on-year ratio of +1.5pct, a sales/management expense ratio of 10.7%/11.2%, and a year-on-year increase of 0.7/5.8pct. The comprehensive net interest rate after deducting non-return mother was 5.2%, and -5.9pct year over year.
Released a restricted stock incentive plan, poised for 3 years of rapid growth
The company announced the 2024 restricted stock incentive plan, awarding no more than 14.388 million restricted shares, accounting for 1.83% of the total share capital. The grant price was 14.19 yuan/share (closing price of 26.39 yuan/share on March 29). A total of 329 people (including directors, executives, middle management and core cadres) were awarded, with a lifting ratio of 30%/35%/35% for 2024 to 2026. The assessment conditions were: 2024 revenue increased by at least 12% compared to 2023, operating margin not less than 15%, return on net assets not less than 14%; revenue in 2025 increased by at least 32% compared to 2023 (up 18% compared to 2024), operating margin not less than 16.5%, return on net assets not less than 15.5%; revenue in 2026 increased by no less than 95% compared to 2023 (48% increase over 2025), operating margin of not less than 18% compared to 2025, and return on net assets of not less than 20%. Bind the interests of core employees, promote the long-term development of the company, actively set assessment goals, accelerate year by year, balance growth and asset quality, and prepare for 3 years of rapid growth.
Released a 3-year strategic plan to reinvent the new kitchen state
The company announced the strategic planning plan for Delicious Fresh Company for the next three years. The strategic goal is to “rebuild a new kitchen state and achieve high quality development”. Through building the three capabilities of “fine marketing, continuous innovation, and lean operation”, the internal+epitaxial two-wheel drive performance has grown rapidly, become a first-class enterprise in the industry, deeply cultivate the stock market, develop steadily, quickly build a national layout, and expand overseas markets. The target is that by 2026, Delicious Fresh will have an operating revenue target of 10 billion yuan and an operating profit target of 1.5 billion yuan. The company disassembled the momentum that supports rapid growth in detail from various aspects, and at the same time introduced corresponding incentive mechanisms. We believe that the results of the company's reforms are expected to continue to be released, and the long-term potential will improve.
Investment advice:
Looking ahead to 2024, the company's reforms will advance steadily, the division structure and personnel adjustments will be basically implemented, and incentives will be introduced to bind core interests and superimpose expectations such as land divestment and extended mergers and acquisitions to jointly promote the company's rapid growth in 3 years. We expect the company's revenue for 2024-2026 to be $57.6/67.9/8.05 billion yuan, respectively, and net profit of 7.5/9.6/1.24 billion yuan, respectively (considering the impact of equity incentive expenses, only connotation growth), maintaining a buy-A investment rating, and a target price of 33.43 yuan for 6 months, which is equivalent to 35xPe in 2024.
Risk warning: Reform progress falls short of expectations, fluctuations in raw material costs exceed expectations, catering recovery falls short of expectations, etc.