Revenue of 35.50/695 million yuan was achieved in 2023/2024Q1. Revenue continued to be under pressure. Looking at the full year of 2023, the company achieved revenue of 3,550 million yuan, down 1% year on year, and realized net profit to mother of 332 million yuan, up 49% year on year. Excluding the impact of the low base, net profit to mother grew by about 1% year on year, putting pressure on overall performance. Looking at 2024Q1 alone, the company achieved revenue of 695 million yuan, a year-on-year decrease of 8%, and realized net profit to mother of 54 million yuan, an increase of 21% over the previous year, and revenue continued to be under pressure.
Significant improvement in gross margin and significant increase in profitability
In terms of gross margin, a gross profit margin of 22.46% was achieved for the full year of 2023, an increase of 6 pcts year on year. 2024Q1 continued the year-on-year upward trend in gross margin. By product, it is mainly due to a sharp increase in gross margin for husband and wife lung products. We think it is mainly due to the drastic improvement in beef costs. Looking at the cost rate, the sales expenses rate rose significantly in 2023, with a year-on-year increase of 2 pcts. We think it is mainly due to increased competition in the industry and increased off-season discounts. The management cost rate and R&D expense ratio were almost the same as compared to the same period last year. Looking at net interest rates, net interest rates of 9.6%/7.7% were achieved for the full year of 2023 and 2024Q1 respectively, an improvement of nearly 4/2 pcts year-on-year respectively, mainly due to improvements in gross margin.
Steady store expansion and fine management, diversified cooperation opens up space for imagination
Steady expansion of stores, with a net increase of 510 stores for the full year of 2023. According to narrow-door dining data, first-tier, second-tier and non-first-tier and second-tier stores increased by 9%/6%/10% year-on-year respectively in 2023. Taking into account both high level encryption and low tier sinking, the store expansion strategy progressed steadily and continued to maintain the leading position in the industry. Diversified cooperation to open new channels and new businesses incrementally. On the C-side, the company cooperated deeply with platforms such as Hema/Lawson/Family/711/Meituan Grocery Shopping; the TOB side used pre-prepared dishes/cold salads/braised snacks as a breakthrough, and has now successfully expanded first-line brand customers such as Grandpa, Chen Xianggui, and Guoquan Food Exchange, and the future can be expected.
Profit forecasting and valuation
The company is the leading brine in China. Environmental competition intensified in 2023, and performance was under pressure. Combined with China's broad growth space and stable industry leading position, we expect the company to achieve revenue of 41.82/45.34/4.857 billion yuan in 2024-2026, up 18%/8%/7% year on year. We expect to achieve net profit of 3.73/4.30/ 482 million yuan in 2024-2026, up 12%/15%/12% year on year, corresponding EPS of 0.91/1.04/1.17 yuan/share, corresponding PE 21/18/16x. At the same time, considering that the company values shareholder returns, the 2023 dividend rate is 99%, corresponding to a dividend rate of about 4%, maintaining a “buy” rating.
Risk warning
Raw material costs have risen sharply, store expansion falls short of expectations, food safety issues, and increased market competition.