Incident: 1) On March 30, the company released its 2023 annual report. In 2023, the company achieved operating income of 1,921 million yuan (-1.70%) and net profit to mother of 171 million yuan (+129.01%); of these, Q4 achieved operating income of 340 million yuan (+1.17%) and realized net profit to mother of -30 million yuan (+43.55%). 2) On March 8, at the Forbes 2024 China Consumer Annual Festival, Huangshanghuang Shredded Duck and Zhenzhenlao Intangible Heritage Master Zongzi won the “2024 Big Consumer Year Influential Product” award.

About 70% of the store opening target has been completed, and the quality of the store continues to improve. In 2023, the company vigorously expanded high-potential stores such as the airport high-speed rail, added new types of supermarket retail such as Hema Xiansheng and Sam, and promoted the “Thousand Cities, Ten Thousand Stores” program across all channels. The target for opening stores in 2023 is 2000 stores, and the actual target is likely to reach more than 70%.

By the end of 2023, the company's meat processing industry had 4,497 specialty stores, including 262 direct-run stores and 4235 franchise stores. The sales network covered 234 cities in 28 provinces across the country, adding 572 specialty stores compared to the end of 2022, including 15 direct-run stores and 557 franchised stores. The company continues to optimize the store structure, introduce stronger franchisees, and improve overall store quality. 2023H1 single-store sales reached 650,000 yuan, an increase of 9.87% over the previous year, and basically returned to about 90% of the average sales level of a single store before the pandemic (2019).

Net profit to mother increased, and profitability rebounded. In 2023, the company achieved operating income of 1,921 billion yuan (-1.70%) and realized net profit of 71 million yuan (+129.01%) to mother. The company's many operating indicators have gradually improved. The comprehensive gross margin for the full year of 2023 was 29.06% (+0.90pct), and the net profit margin to mother was 3.68% (+2.10pct). In terms of expense ratios, the sales expense rate/management expense rate/financial expense ratio in 2023 were 14.88%/8.46%/-0.53%, respectively, -1.43/+0.47/ -0.23pct, respectively. The three fees combined decreased by 1.19pct. By product, braised meat products achieved operating revenue of 1,468 million yuan (-1.97%) and gross margin of 32.10% (+0.81pct), mainly due to the decline in raw material prices for duck by-products since 2023Q2 compared to the beginning of 2023; the rice products business stopped declining and reversed due to refined management and channel expansion, with revenue of 358 million yuan (+5.31%) in 2023, and gross margin increased to 18.06% (+2.53pct).

Strengthen dividends, and the goal for 2024 is clear. The company has maintained a dividend payment rate of around 25% since its listing. In 2023, the cash dividend ratio was increased. It plans to pay a cash dividend of 1.80 yuan (tax included) for every 10 shares, and the dividend payment rate is as high as 142.03%. The company's goals for 2024 mainly focus on two points: ① Open 2,000 new stores. The expansion direction includes deep cultivation of old markets (such as Jiangxi, Guangdong, Fujian, and Liaoning), new market expansion (around the construction of new processing bases, such as Shaanxi, Chongqing, Zhejiang, and Shandong); ② the planned revenue for 2024 is 2.35 billion yuan and net profit of 140 million yuan, achieving a double increase in revenue and profit.

The company's strategic ideas are clear: ① In terms of number of stores, adhere to the “thousands of stores” strategy and the new “mother and child” store model to enhance regional competitiveness; ② In terms of single store revenue, deepen the “1+N” “two sales and one long” online+offline business model, enrich consumption scenarios with new retail third platforms (Douyin, takeout, etc.), and enhance consumer stickiness with community+drainage products+repurchase vouchers; ③ In terms of product layout, third-party consulting companies were introduced to create star products, and shredded duck sales accounted for 3.14% from the beginning of 2023 Raise to 11.70% at the end of the year and get 2023 The International Monte Award and Forbes 2024 Consumer Annual Influential Product Award won the “Top Ten Delicious Premade Dishes List” of China Central Radio and Television's National Prepared Food Competition.

Investment advice: As the “first stock of braised food”, the company has been deeply involved in the industry for many years, adhering to the “thousands of stores in a thousand cities” strategy, optimizing the store structure, deepening the “1+N” “two sales and one advantage” online+offline business model, and promoting the improvement of single store performance. It is estimated that under the “531” long-term medium-term plan, the company will achieve revenue of 2.285/26.95/3,074 billion yuan in 2024-2026, up 19%/18%/14% year on year; achieve net profit to mother of 1.4/1.9/252 million yuan, up 98%/36%/32% year on year respectively; and the corresponding PE valuation is 33/24/18X, respectively, maintaining a “buy” rating.

Risk warning: food safety risk, industry competition risk, raw material price fluctuation risk, risk of store expansion falling short of expectations, macroeconomic downturn risk.