Core views

After 23Q4 internal marketing organization adjustments, since the beginning of the year, the company's main condiment business has returned to the right track, sales performance has improved as scheduled, and achieved double-digit growth. By product, sales in the core soy sauce and chicken extract powder business increased by 13.44% and 16.83%, respectively, over the same period last year. The company further strengthened the upgrading, iteration and marketing of the main products promoted. Looking at the subregions, sales revenue in all regions recorded positive growth. Among them, the eastern region showed high growth performance, while the central western and northern regions benefited from strengthened channel layout, corresponding sales increased by 9.90% and 7.61% year-on-year, respectively. In terms of profit, falling raw material costs combined with product structure optimization have increased gross margin. Overall rates have also been further optimized, and the company's profitability has improved markedly.

occurrences

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

During the reporting period, the company achieved revenue of 1,485 billion yuan, an increase of 8.64%; net profit to mother of 239 million yuan, an increase of 59.70% year on year; net profit after deducting non-return to mother was 237 million yuan, an increase of 63.91% year on year. Among them, Delicious Fresh's subsidiary achieved revenue of 1,461 billion yuan, an increase of 10.20% year on year; net profit to mother was 244 million yuan, an increase of 59.75% year on year.

Brief review

Operating performance improved as scheduled, and the main business resumed double-digit growth

After 23Q4 internal marketing organization adjustments, since the beginning of the year, the company's main condiment business has returned to the right track, sales performance has improved as scheduled, and achieved double-digit growth. By product, the company's core soy sauce (accounting for 63.76%) and chicken extract powder business (accounting for 12.22%) both achieved good growth. Corresponding sales increased 13.44% and 16.83% year over year, respectively, while sales in the edible oil business (accounting for 6.82%) fell 5.54% year on year. The company further strengthened the upgrading, iteration and marketing promotion of the main products promoted. Looking at the subregions, sales revenue in all regions recorded positive growth. Among them, the eastern region (accounting for 25.06%) showed high growth performance, with a year-on-year increase of 24.48%; in the rest of the regions, sales in the southern region (accounting for 35.13%) increased 2.64% year on year, and sales in the Midwest region (accounting for 21.83%) and the northern region (accounting for 15.15%), which have relatively weak channel layouts, increased 9.90% and 7.61%, respectively. In terms of the number of dealers, as of the end of 24Q1, the company had a total of 2,181 dealers, a net increase of 97 over the end of 23. Among them, the number of dealers in the East/South/Midwest/North regions changed to -2/+5/+65/+29, respectively. The company further strengthened the gap market layout in the Midwest and North regions.

Cost optimization+rate improvement, significant increase in profitability

The company's 24Q1 gross margin was 36.98%, up 5.57 pcts year on year. Among them, the gross margin of the subsidiary Delicious Fresh was 37.28%, up 6.08 pcts year on year. The significant improvement in gross margin was mainly due to the reduction in raw material procurement costs and product structure optimization after the procurement system was optimized. In terms of expenses, the year-on-year change in the company's 24Q1 sales/management/R&D/finance rate was -0.85/-0.04/-0.34/-0.04pcts. Overall, all rates improved due to the increase in revenue scale. Among them, the sales rate dropped a lot mainly because the company focused on actual cost efficiency and boosted terminal marketing. In addition, the company's effective tax rate increased in a single quarter (about 1.07pcts). In the end, the company's 24Q1 net profit margin increased by 5.15 pcts to 16.10% year on year. Among them, the subsidiary Delicious Fresh's net interest rate increased 5.91 pcts year on year to 18.21% year on year, and profitability increased significantly year over year.

Management changes are progressing steadily, and growth potential continues to strengthen

Since the fourth quarter of last year, the company has been steadily advancing internal business transformation, reshaping the management mechanism from multiple dimensions such as marketing, products, organization, and supply chain, and setting a three-year incentive target of 10 billion dollars for endogenous and external extension to stimulate the momentum for enterprise development. Specifically, in terms of marketing, the company promotes the implementation of hierarchical dealer management, and introduces a target responsibility assessment mechanism to improve terminal coverage and customer service capabilities; the investment of resources favors the cultivation of end consumers, drives transformation from channels to consumers, and sets up a special team to connect with weak catering channels to cultivate a direct management system. In terms of products, the company has reorganized the category structure, clung to the development of major categories such as soy sauce and chicken powder, and focused on creating large single products based on product quality advantages; at the same time, it also launched healthy concept products such as organic and salt reduction to meet the needs of differentiated scenarios. On the supply chain side, the company is reforming the procurement model, strengthening the informatization transformation of the entire business process, implementing cost reduction and efficiency, and improving operating efficiency. Currently, the company is still in the early stages of reform. It is expected that the results of subsequent reforms will gradually be shown to help the company achieve high-quality growth.

Profit forecast: Based on the company's first-quarter earnings report, we raised our previous profit forecast. We expect the company to achieve revenue of 57.68, 67.98, and 8.064 billion yuan in 2024-2026, and achieve net profit of 8.03, 10.11, and 1,298 billion yuan, corresponding to EPS of 1.02, 1.29, and 1.65 yuan/share.

Risk warning: 1) Risk of rising prices of raw materials such as soybeans: Direct materials account for a relatively high share of production costs in the condiment industry. Prices of bulk agricultural products such as soybeans have fluctuated greatly in recent years, which has had a great impact on the company's profits. If the subsequent rise in raw material prices exceeds expectations, it will have an adverse impact on the company's performance.

2) Food safety risks: Condiments are frequently used in production and life, and are widely used. They are directly related to people's dietary health. If a related food safety incident occurs, it will reduce the public's trust in the company's products and have a major adverse impact on the company's business operations. 3) Demand recovery falls short of expected risk:

The company's current operating pace is still constrained by the recovery process of downstream demand. If terminal demand falls short of expectations, the company's operating performance will still face some pressure in the short term.