24Q1 net profit without return to mother +13.89% YoY. In '23, the company's revenue was 3.55 billion yuan, -1.46% year on year, net profit to mother was 332 million yuan, +49.46% year over year, net profit after deduction was 278 million yuan, +53.26% year over year. Profit increased rapidly in 23 years, mainly due to raw material prices approaching the range of previous years, and the company achieved cost reduction and efficiency by optimizing the supply chain, improving production processes, and strengthening technological transformation. Net operating cash flow in '23 was 554 million yuan, +57.99% year-on-year, mainly due to lower costs and lower procurement amounts. It is proposed to distribute a cash dividend of 8 yuan (tax included) for every 10 shares in '23. The 24Q1 company's revenue was 695 million yuan, -8% year on year, net profit to mother was 54 million yuan, +20.87% year on year, net profit after deducting net income of 39 million yuan, +13.89% year on year.

Gross profit margin and net profit margin increased significantly in 24Q1. 23 The company's gross margin was 22.46%, +6.49pct; sales expense ratio/management expense ratio/financial expense ratio were 6.13%/5.04%/-0.06%, respectively, +2.32pct/+0.19pct/-0.01pct, respectively. The increase in sales expense ratio was mainly due to developing new sub-brands, expanding new regions, increasing investment in advertising expenses, and increasing corresponding sales staff; net profit margin was 9.34%, +3.18pct year on year. The 24Q1 company's gross margin was 20.89%, +2.2pct; sales expense ratio/management expense ratio/ financial expense ratio were 5.22%/6.86%/0.05%, respectively, +0.68pct/+0.11pct/+0.1pct, respectively, and net profit margin was 7.77%, +1.86pct year over year.

24Q1 pre-packaged and other product revenue yoy +6.44%. The revenue of each product in '23 was 3.04 billion yuan/ -1.71% for fresh goods and 345 million yuan/ -5.72% for pre-packaged and other products, respectively. 24Q1 product revenue/yoy was 562 million yuan/ -10.96% for fresh goods and 87 million yuan/ +6.44% for pre-packaged and other products, respectively.

24Q1 East China region is still under pressure. Looking at the regional distribution, the top regional revenues/yoy in 23 years were East China 2,447 million yuan/ -5.43%, Central China 392 million yuan/ +0.93%, Southwest China 317 million yuan/ +9.46%, and North China 156 million yuan/ +8.04%, respectively. 24Q1 revenue/yoy was 466 million yuan/ -11.57% in East China, 77 million yuan/ -1.56% in Central China, 67 million yuan/ -8.1% in Southwest China, and 36 million yuan/ +11.8% in North China, respectively.

There was a net increase of 510 stores in '23. By the end of '23, the total number of the company's stores was 6,205, up 8.96% year on year, compared with a net increase of 510 at the end of '22, with a net increase of 442 for H1 and 68 for H2. Structurally, the number of directly-managed stores remained the same in '23, and the net increase in stores was all franchise stores.

Profit forecasting and valuation. We expect the company's 24-26 EPS to be 1.02/1.2/1.4 yuan, respectively. The relevant comparable company's 24-year PE is 12-29 times. Considering the boom in the industry and the company's performance is expected to continue to grow at a high rate, a certain valuation premium is given, 20-25 times PE is given in 24 years, corresponding to a reasonable value range of 20.4-25.5 yuan, and given a “superior to the market” rating.

Risk warning. The impact of price fluctuations in upstream raw materials; increased competition in the industry, etc.