Incidents:
Zhongju Hi-Tech released its 2024 quarterly report. In 24Q1, it achieved revenue of 1,485 billion yuan, +8.64% year over year; net profit to mother of 239 million yuan, +59.70% year over year; net profit after deducting non-return to mother was 237 million yuan, +63.91% year over year. Among them, Delicious Fresh achieved revenue of 1,461 billion yuan, +10.20% year-on-year, and net profit to mother of 244 million yuan, +59.75% year-on-year.
The reforms are beginning to bear fruit, and the momentum for growth continues
By product, 24Q1 soy sauce/chicken powder, cooking oil/others achieved 9.5/1.8/1.0 billion yuan, respectively, or +13.4%/16.8%/-5.5%/-0.3% over the same period. The company's division reform progressed steadily, and growth momentum in non-main sales areas was remarkable, boosting Delicious Fresh's revenue growth by 10.2%, and achieved impressive performance. Due to strategic planning reasons, the edible oil business did not focus on efforts as an auxiliary category, and there was a slight decline. Looking at the subregions, East/South/Midwest/North were +24.5%/2.6%/9.9%/7.6%, respectively, -2/+5/+65/+29 dealers to 2,181, respectively. Foreign port market development has progressed significantly, the dealer team in non-main sales areas continues to grow, and new teams have made significant progress in developing new teams.
Gross margin was +5.6pct year-on-year, and profitability increased significantly
24Q1 achieved a gross profit margin of 37.0%, +5.6pct year over year. Among them, Delicious Fresh achieved a gross profit margin of 37.3%, with a significant increase in gross margin mainly due to 1) product structure optimization, the share of low-margin cooking oil declined, from 8.2% in 23Q1 to 7.0% in 24Q1; 2) the cost of raw materials such as soybeans declined. According to data from the National Bureau of Statistics, the soybean market price at the end of 2023 was -14%; 3) Cost savings were brought about by the optimization of the company's procurement model. The company's sales/management/R&D expense rates were 7.7%/6.4%/2.9%, respectively, compared to -0.9/flat/-0.3 pct. The declining sales expense ratio was driven by a decrease in personnel, and the management cost ratio was mainly due to an increase in labor efficiency. The net interest rate returned to mother was 16.1%, +5.1 pct year on year, and Delicious Fresh achieved net interest rate of 16.7% to mother, +5.2 pct year on year, with a significant increase in profitability.
Investment advice:
Looking ahead to 2024, the company's reforms will advance steadily. The introduction of equity incentives will bind the interests of core employees and stimulate enthusiasm for reform. The 3-year strategic plan is the blueprint for reform planning, basic implementation of division structure and personnel adjustments, compounded expectations such as expected minority shareholding, subsequent land divestment, and extended mergers and acquisitions during the year to jointly promote the company's rapid growth in 3 years. We expect the company's revenue for 2024-2026 to be $57.6/6.7.9/8.05 billion yuan, respectively, and net profit of 7.8/9.9/1.22 billion yuan respectively (the impact of equity incentive expenses has been taken into account, only content growth has been taken into account, not considering minority share recovery), maintaining the buy-A investment rating. The target price for 6 months is 34.54 yuan, which is equivalent to 35xPE in 2024.
Risk warning: Reform progress falls short of expectations, fluctuations in raw material costs exceed expectations, catering recovery falls short of expectations, etc.