Incident: The company released its 2023 annual report, achieving a turnover of 4.872 billion yuan, an increase of 5.2% year on year; realized profit attributable to shareholders of 880 million yuan, an increase of 481.9% year on year; achieved net adjusted net profit of 970 million yuan during the year, an increase of 6.3%. The company's performance was in line with market expectations. The company plans to pay a dividend of $0.21 per share (ordinary dividend of $0.1 per share, special dividend of $0.11 per share), with a dividend rate of 88.1%.
Investment rating and valuation: Considering the impact of the decline in passenger traffic from traditional channels on sales of seasoned noodle products, the 24-25 profit forecast was lowered, and a 26-year forecast was added. The company's net profit for 2024-2026 was 10.33, 11.85, and 1,354 billion yuan (11.60 billion yuan and 1,344 billion yuan in the previous 24-25 year period), up 17%, 15%, and 14% year over year, respectively. The latest closing price corresponding to PE in 24-26 was 12x, 10x, and 9x, respectively, maintaining an increase rating. As a leading enterprise in the industry, the company has high brand awareness. Seasoned noodle products are expected to maintain steady growth, and vegetable products are expected to accelerate growth with channel advantages, becoming the company's second growth curve.
The performance of seasoned noodle products was under pressure, and revenue from vegetable products increased. By product, seasoned noodle products/vegetable products/soy products and other products achieved revenue of 25.5/21.2/20 billion yuan respectively in '23, or -6.2%/25.1%/-7.4%, respectively. In terms of volume and price breakdown, seasoned noodles/vegetable products/soy products and other products sold 12.4/7.1/0.5 million tons respectively, -17.4%/+33.1%/-12.7% year-on-year, respectively. The average price was 20.5/29.6/38.4 yuan/kg, respectively, +13.5%/-4.5%/+6.0% year-on-year, respectively. Sales of seasoned noodle products are under pressure due to declining traffic from traditional offline channels. Vegetable products have performed well through continuous upgrading and iterative product matrices. Among them, “Little Witch” launched konjac's refreshing single product, konjac veal belly, and also launched a sesame sauce fondue flavor in February 2024. By region, East China, Central China, North China, South China, Southwest China, Northwest China, and Overseas achieved revenue of 9.7/7.5/6.4/7.8/5.5/5.7/100 million yuan, respectively, 10.3%/-5.9%/0.1%/12.8%/12.4%/-1.8%/49.1%, respectively. The company is actively expanding overseas business, and overseas revenue has increased dramatically. The company has fully embraced snack mass sales channels since 23Q2. We expect snack mass sales channels to account for about 10% in '23.
Price increases have been successfully transmitted, and profitability has improved. The company achieved a gross profit margin of 47.7% in '23, an increase of 5.4pct over the same period last year. The main factors are: 1) increase in average selling price due to product restructuring; 2) reduction in raw material prices; 3) The company continuously optimizes production processes to improve cost control capabilities. The company's sales expenses rate increased by 2.9 pct to 16.6% year on year. The main reasons are: 1) the company continues to expand its sales team, with employee service fees of 350 million, compared to 250 million in the same period last year; 2) the company increased advertising, promotion and advertising expenses by 210 million, compared to 140 million in the same period last year. The management fee ratio decreased by 1 pct to 9.4% year on year, mainly due to a reduction in listing costs. Overall, the company achieved an adjusted net interest rate of 19.9%, an increase of 0.2 pct over the previous year.
Core hypothesis risk: channel risk, raw material price fluctuations, food safety issues