Incident: The company released its 2023 annual report, achieving full-year revenue of 5.14 billion yuan, -3.8%; realized net profit of 1.69 billion yuan, compared with -590 million yuan in the same period last year; realized net profit of 520 million yuan without return to mother, -5.8% year on year. Among them, 23Q4 achieved revenue of 1.19 billion yuan, or -14.4%; realized net profit of 2,969 billion yuan, compared with -1.01 billion yuan in the same period last year (the sharp increase in net profit was mainly due to the withdrawal of the industrial joint case and the impact of reversing the estimated debt of 1.18 billion yuan calculated above); net profit withheld from non-mother was 60 million yuan, -60% over the same period last year. The results were in line with the previously released performance report. At the same time, the company plans to distribute a cash dividend of 4 yuan (tax included) for every 10 shares.
In addition, the company announced the 2024 equity incentive draft, which aims to grant incentives to a total of 329 people. The performance assessment targets are based on 2023. The revenue growth rate for 24/25/26 is not less than 15%/32%/95%; the operating profit margin is not less than 15%/16.5%/18%; and the return on net assets is not less than 14%/15.5%/20%.
Revenue from the main business grew steadily, and Q4 results were under pressure in the short term. In 2023, Delicious Fresh's subsidiary achieved revenue of 4.93 billion yuan, -0.5% year-on-year; of these, Q4 achieved revenue of 1.14 billion yuan in a single quarter, -13.3% year-on-year. Affected by the company's active channel and internal structure adjustments, the main Q4 condiment business was under pressure. By product, the revenue growth rate of soy sauce/ chicken powder, cooking oil/ other products in 2023 was +0.1%/+13.4%/-10.6%/-6.8%, respectively; chicken extract chicken powder benefited from good demand for catering and maintaining the growth rate, while the decline in edible oil was an important reason for reducing the revenue growth rate of the main condiment industry. Looking at the subregions, revenue growth rates in the East/South/Midwest/North in 2023 were -1.5%/-0.3%/+7.4%/-10.3%, respectively. The company continued to strengthen the development of the gap market, and the Midwest region achieved more than double digit growth rates. In terms of channels, the company has steadily promoted nationwide expansion. The development rate of districts, counties, and prefecture-level cities increased to 72.2%/94.4% respectively, and the number of dealers increased net by 81 to 2,084 throughout the year.
Cost dividends were gradually released, and profits remained stable throughout the year. In 2023, the gross margin of Delicious Fresh was 32.7%, +1.9pp; of these, the Q4 single quarter gross margin was 33.7%, +2.5pp year on year. The increase in gross margin was mainly due to lower prices of raw materials such as soybeans and packaging materials. In terms of overall expenses, the 2023/23Q4 sales expense ratio was +0.04pp/+0.7pp to 8.9%/10.7% year over year, respectively. The company actively controlled expenses, and the annual sales rate was basically flat; the 2023/23Q4 management expense ratio was +1.3 pp/ +5.8pp to 7.3%/11.2% year on year, respectively. The increase in management expenses in Q4 was mainly affected by organizational changes affecting the phased termination of labor relationship compensation and consulting fees. Taken together, in 2023/23Q3, the company's deducted non-net interest rates were -0.2pp/ -5.9pp to 10.2%/5.2% year on year, respectively. The net interest rate for the whole year was 12.1%, +0.4pp year-on-year, and profitability remained stable.
Internal reforms are expected to bear fruit, and equity incentives show management confidence. 1) Since the new executive team took office in the second half of '23, the company has continued to push for drastic management system reforms. The marketing side has established a division system. While breaking the original sales regional authority, the company has fully decentralized authority to the frontline division to add vitality to the sales team. 2) The company issued an equity incentive draft for 2024, which plans to grant 14.388 million restricted shares (grant price is 14.19 yuan/share), with a total incentive target of 322 people; while the revenue performance assessment target is estimated, the corresponding revenue side growth rate for 24/25/26 is 15%/14.8%/47.7%, respectively, with a three-year CAGR of 24.9%; at the same time, according to the subsidiary Delicious Fresh's three-year development plan, the revenue target is 10 billion yuan and the operating profit target is 1.5 billion yuan by 2026. The scope of the company's equity incentive targets has exceeded expectations. On the one hand, it shows the company's management's full confidence in future development. On the other hand, difficult goals also motivate and test employees, helping to fully motivate the team. Looking forward to the future, as the results of the company's reforms gradually become apparent, the cost price of superimposed raw materials remains low, national channel investment is poised to be launched, and future performance growth is worth looking forward to.
Profit forecasting and investment advice. EPS is expected to be 1.00 yuan, 1.25 yuan, and 1.58 yuan respectively in 2024-2026, and corresponding dynamic PE will be 28 times, 22 times, and 18 times, respectively. Considering that the company's equity incentives and three-year plan goals are clear, and at the same time, there is plenty of room for nationwide channel expansion in the future. Furthermore, the new management team's goals are firm and strong in execution, maintaining a “buy” rating.
Risk warning: Nationalization falls short of anticipated risks, and market competition increases risks.