Matters:
The company released the 2023 annual report and the 2024 quarterly report. The full year of 2023 achieved revenue of 3.55 billion yuan, -1.46% year on year; net profit to mother of 332 million, +49.46% year on year; single Q4 achieved revenue of 734 million yuan, -14.65% year over year, net profit to mother of 9.917,400, and loss of 5.764 million for the same period last year. 24Q1 achieved revenue of $695 million, -8.0% YoY; net profit to mother of $54 million, +20.87% YoY.
The company plans to pay a cash deposit of 8 yuan (tax included) for every 10 shares, and the corresponding calculated dividend rate is about 4.1%.
Commentary:
The year-on-year decline in single stores, combined with the slowdown in 23H2 store openings, put pressure on revenue in '23, while the downward pressure from the high base in 24Q1 continued. 23. The company's revenue for the whole year was -1.5% year-on-year, with fresh goods products -1.7% year-on-year, with a net year-on-year increase of 510 to 6205 stores (including a net increase of 68 H2), while single-store revenue was -9.8%. In terms of volume and price, single-store sales volume/average product price were -6.0%/-4.0%, respectively. By product, sales revenue for husband and wife lung fillets, whole poultry, spicy leisure, and other fresh products was 0.5%/-4.1%/-18.7%/+7.9%, respectively. By region, the core region of East China was -5.4%, Central China remained flat with a slight increase of +0.9%, and the Southwest/North China/Northwest/Northeast China achieved high growth under a low base, +9.5%/8.0%/+8.2%/+28.9%/+41.5% year-on-year, respectively. However, Q1 revenue was -8.0% year-on-year, mainly due to a higher base of 23Q1 and better dining out in 24Q1, in line with our previous expectations. Among them, fresh goods products were -11.0% year-on-year, and East China was -11.6% year-on-year. Despite continued operating pressure, the gap improved slightly compared to 23Q4.
The cost dividend was realized, profit was drastically restored in '23, and profit continued to improve in 24Q1. The company's 23 annual gross profit margin was 22.5%, +6.5 pcts year over year, mainly benefiting from a sharp drop in the price of raw materials such as beef and chicken when the average sales price remained basically unchanged, such as +0.1%/-20.8% per unit price/cost for husband and wife, while on the cost side, the annual sales expense ratio was +2.3 pcts year over year, mainly due to H2 companies concentrating on increasing advertising expenses (also the main reason for low profit expectations in 23Q4). The other expenses rate was relatively stable. In the end, the net interest rate improved to 9.6% and +3.2 pcts year on year 23. The 24Q1 company's gross profit margin was 20.9%, +2.2 cpts year on year. The main reason was that the price of core raw materials continued to decline. In addition, the price of chicken/imported beef fell by more than double digits in the first quarter. Furthermore, 24Q1 sales/management expenses ratio was +0.7/-0.1 pcts year on year, and finally Q1 achieved a net profit margin of 7.8%, +1.9 pcts year on year, continuing the previous trend of improving profits.
After 23 years of active response and deepening advantages, it is expected that steady growth will return in 24, and profits will continue to improve. Faced with a high base and demand pressure, the company actively responded in '23. During the period, the first was to strengthen fine management and improve service, and segment the management structure to achieve full coverage of evaluation machines; the second was to innovate research and develop to cultivate new products such as pork head mixed with sour soup and fatty beef. The third was to work in multiple dimensions such as channels, supply chain, cross-border cooperation, and overseas travel. Among them, the C-side promoted e-commerce platforms and new retail. The B side used pre-prepared dishes to break through 100 of the four stores in the supply chain, New investment and cooperation with brands such as Laohan Fried Chicken and Beijing Crispy, etc., to launch an overseas layout in Australia , American market. Looking ahead to 24, after standing at a low base, considering new product cultivation and refined operation, the company's single store is expected to improve upward, compounding the contribution of steady store expansion. At the same time, revenue is expected to return to steady growth throughout the year 24. At the same time, cost-side dividends will continue. There are few problems with achieving equity incentive goals, and further improvements on the profit side.
Investment advice: Single stores are under pressure, profits have improved, dividend performance is outstanding, and the “recommended” rating is maintained. Under a low base, the company's 24-year same-store decline is expected to narrow. Coupled with continued profit improvements, profit-side flexibility can still be expected. Considering that the company formulated an investor return plan for 2 consecutive years and steadily increased the cash dividend ratio (22/23 dividend payment rate was about 139%/99%), the current valuation has declined, and it is already attractive from a dividend rate perspective. Based on the situation in the first quarter, we adjusted the 24-25 EPS forecast to 0.95/1.08 yuan (the original forecast was 1.25/1.47 yuan), and also introduced the 26-year forecast to 1.22 yuan, which corresponds to the P/E valuation 21/18/16 times. We gave the company a 25 times valuation, corresponding to a target price of 23.75 yuan, and maintained a “recommended” rating.
Risk warning: Recovery falls short of expectations, industry competition intensifies, dividend ratio declines, cost pressure exceeds expectations, etc.