Core views

Overall market demand in the first quarter continued the weak recovery trend since last year. Among them, in January, driven by travel consumption during the Spring Festival, the company's sales performance is expected to be relatively good, while February-March was affected by factors such as the Spring Festival misalignment, and operating performance was weak. Looking at the subregions, the business performance of the southwest region was relatively high. Sales increased year on year, while sales in the rest of the regions declined.

In terms of profit, the company's 24Q1 gross margin was 23.10%, down 0.83 pcts from the previous year. It is expected to be mainly related to factors such as high amortization of expenses related to the new production capacity climbing phase and the fact that the price of raw materials for flour is still high. As a result, the company's profit performance in a single quarter is still under pressure. If the demand side gradually recovers in the future, the company's operating efficiency is expected to be further improved, and cost-side pressures such as depreciation will be reduced, leading to a recovery in performance.

occurrences

The company announced its report for the first quarter of 2024:

During the reporting period, the company achieved operating income of 1,400 billion yuan, a year-on-year decrease of 5.15%; net profit to mother was 115 million yuan, a year-on-year decrease of 16.95%; and net profit after deducting net income of 109 million yuan, a year-on-year decrease of 16.54%.

Brief review

Market demand improved slowly, and revenue declined year-on-year in a single quarter

Overall market demand in the first quarter continued the weak recovery trend since last year. Among them, in January, driven by travel consumption during the Spring Festival, the company's sales performance is expected to be relatively good, while February-March was affected by factors such as the Spring Festival misalignment, and operating performance was weak. In terms of subregions, the Southwest region (accounting for 12.75%) had a relatively high operating performance, with sales up 3.40% year over year, while sales declined in the rest of the regions. Specifically, the company's 24Q1 sales account for relatively high sales in Northeast China (accounting for 37.15%) /East China (accounting for 32.69%) /North China (23.35%), a year-on-year decline of 13.86%/3.69%/4.62%; for the rest of the regions, sales in South China (7.67%) /Northwest China (6.96%) /Central China (3.37%) fell 10.11%/2.84%/1.65% year-on-year. In terms of the number of dealers, as of the end of 24Q1, the company had a total of 982 dealers, a net decrease of 3 from the end of 23, and remained stable.

Gross margin declined year-on-year, and profit performance was still under pressure

The company's 24Q1 gross margin was 23.10%, down 0.83 pcts year on year. It is expected to be mainly related to factors such as high amortization of expenses associated with the new production capacity climbing phase and the still high price of raw materials for flour. In terms of expenses, the year-on-year changes in the company's 24Q1 sales/management/R&D/finance rates were -0.12/+0.21/ +0.05/ +0.26pcts, respectively. The overall rate was relatively stable. Among them, the higher financial rate was mainly due to an increase in current interest expenses. Ultimately, the company's 24Q1 net profit margin fell 1.17pcts to 8.23% year on year, and the year-on-year decline in gross margin still put pressure on the company's profitability.

Firmly establish a national layout and pay attention to progress in improving demand

The company is committed to the national market layout, strengthening the refinement and decline of sales channels in mature markets such as Northeast China and North China, strengthening development of the two potential markets in East China and South China, promoting the construction of local production capacity projects in an orderly manner, and continuously improving market service capabilities. In the short term, affected by external environments such as slow recovery in market demand, increasingly diversified downstream demand, and fragmentation of retail channels, the company's operations are under certain pressure, but the company is also actively adapting to changes, strengthening new product research and development, enriching channel cooperation models, strengthening the digital construction of production and marketing, and consolidating and increasing its market share by relying on the advantages of multiple local production capacity layouts. If the demand side can gradually recover in the future, the company's operating efficiency is expected to be further improved, and cost-side pressures such as depreciation will be reduced, leading to a recovery in performance.

Profit forecast:

We expect that in 2024-2026, the company will achieve revenue of 73.62, 79.49, and 8.507 billion yuan, and net profit to mother of 6.33, 7.19, and 794 million yuan, corresponding EPS of 0.40, 0.45, and 0.50 yuan/share.

Risk warning:

1) The risk that market expansion falls short of expectations: The company had good market development results in Northeast China, East China, Southwest China and other places in the early stages. Later, when developing more competitive markets in South China and other industries, there was stronger market penetration resistance. If the company was unable to find effective countermeasures, it would adversely affect the company's long-term growth space judgment. 2) Risk of rising raw material costs: Although prices of oils and fats began to gradually decline steadily in the second half of '22, price fluctuations are more difficult to predict due to the strong bulk properties of raw materials such as oils and fats. If the prices of raw materials rise further, it will put pressure on the company's performance.

3) Risk of declining product competitiveness: The bakery industry has many product categories and rapid iterations. The company continuously strengthens the development and promotion of new products to adapt to current changing consumer habits and consumption trends. If it is not possible to keep up with changes in consumer demand in a timely manner in the future, it will adversely affect the company's business growth.