Incident: The company disclosed the results announcement for the first quarter of '24: the company achieved revenue of 1,485 billion yuan, up 8.64%; realized net profit due to mother of 239 million yuan, up 59.70%; net profit after deducting non-return to mother was 237 million yuan, an increase of 63.91%; in addition, the company's contract liabilities for the same period fell 16% year on year and 24% year over year end 23. In terms of subsidiaries, Delicious Fresh Q1 achieved revenue of 1,461 million yuan, an increase of 10.2%; net profit to mother was 244 million yuan, an increase of 59.75%.
Core categories such as soy sauce and chicken powder led growth, while the company actively promoted investment in weak markets to increase product portfolio coverage. By category, Q1 soy sauce, chicken extract, cooking oil, and other revenue were +13.44%/+16.83%/-5.54%/-0.31%, respectively. Among them, the company further focused on core categories such as soy sauce and chicken extract powder, optimized the product matrix, and promoted the creation of large single products around healthy directions such as zero addition and salt reduction. By channel, revenue from distribution and direct sales models was +9.61%/26.82% year-on-year, respectively. Looking at the subregions, the company is rapidly covering weak markets across the country, such as actively promoting the market. Among them, revenue in the East, South, Midwest, and North was +24.48%/+2.64%/+9.9%/+7.61%, respectively. The number of dealers in the above regions during the same period was -2/+5/+65/+29, respectively.
Cost improvements, product structure and cost optimization have jointly driven profit recovery beyond expectations. On the profit side, 24Q1 company's gross margin was 36.98%, up 5.57 pcts. Among them, Delicious Fresh had a gross profit margin of 37.28% and an increase of 6.09pcts during the same period, mainly due to the decline in purchase unit prices (expected due to falling raw material prices, optimization of the company's procurement model, and improvement in organizational capacity) and product structure optimization. In terms of expenses, the company continued to optimize the four cost rates, with 24Q1 totaling -1.27pcts, of which sales, management, R&D, and finance cost rates were -0.85/-0.04/-0.34/ -0.04pct year over the same period; the sales, management, and R&D rates for the same period were -0.85/+0.74/-0.4pct year-on-year, respectively. Among them, the increase in delicious fresh management rates was mainly due to a significant year-on-year increase in labor remuneration. Finally, the 24Q1 company achieved a net interest rate of 16.1%, +5.15 pcts year on year; of these, delicious fresh return net interest rate was 16.71%, +5.18 pcts year on year.
The 10 billion plan leads growth, and deep reforms save potential for future growth. Earlier, the company set a three-year strategic plan for Delicious Fresh, that is, the revenue and operating profit targets of 10 billion yuan by 26, respectively, to lead the company to catch up with the target at an accelerated pace. At the same time, the company continues to deepen internal reforms and enhance organizational capabilities, including reshaping the organizational structure, optimizing internal process mechanisms (such as remuneration incentives, target assessment, etc.), and refined channels and cost control models. Therefore, we believe that as the dividends of the company's reforms continue to be released in the future, the company's performance is expected to usher in rapid growth, and the goal of 10 billion dollars of Delicious Fresh can be expected.
Profit forecast and investment advice: The company's net profit for 2024-26 is expected to be 7.7/9.5/1.22 billion yuan, respectively, or -55%/23%/29% year-on-year, respectively. Furthermore, considering that Q1 earnings in '24 exceeded expectations, the base market capacity was large, and the dividends of deep reforms continued to be released, it is expected that the company's future performance growth momentum will be strong.
Therefore, the company was given 35 times PE in 24 years, corresponding to a target price of 34.25 yuan/share, and maintained a “buy” rating.
Risk warning: food quality and safety, improvement of governance structure falling short of expectations, fluctuating raw material prices, etc.