Incident: The company released its 2008 annual report. During the reporting period, the company achieved total revenue of 9.29 billion yuan, an increase of 1592.0%, net profit to mother - 80 million yuan, -273.7% year on year, after deducting non-net profit - 80 million yuan, -353.3% year on year. According to the calculation table, Q4 achieved revenue of 4.39 billion yuan, an increase of 2209.9%, net profit attributable to mother - 0.3 billion yuan, -358.5% year-on-year, after deducting non-net profit of 0.2 billion yuan, or -392.8% year-on-year.

The nationalization process has been accelerated, and the duopoly pattern has been determined. By business, in 2023, the company's edible fungus business and mass-selling snack business achieved revenue of 530 million yuan and 8.76 billion yuan respectively, accounting for 5.8% and 94.2% respectively. Revenue increased 10.8% and 13057.8% year-on-year. Among them, the 2023H1 and H2 mass sales business achieved revenue of 19.5 billion yuan and 6.81 billion yuan respectively, an increase of 249.5%. In terms of the number of mass sales stores, the number of company stores increased from 232 at the beginning of the period to 4,726 in 2023, a net increase of 4,444. By region, at the end of 2023, the company had 3245/699/408/73/190/66/45 stores in East China/North China/Northwest/Southwest/South China/Northeast China, respectively.

In September 2023, the company integrated the four major brands “I want to come”, “Lai Youpin”, and “Lu Xiaoqian” and included the “Wife” brand under its umbrella, leading the number of stores in Anhui, Zhejiang, Jiangsu, Shandong, Hebei, Henan, Chongqing and other provinces and cities, accumulating franchisee and consumer resources, providing a pioneering advantage for the subsequent decline in store development channels. In terms of supply chain, the company has set up 21 warehousing centers. The breadth of logistics coverage and delivery time are among the highest in the industry, effectively improving turnover efficiency while ensuring the quality and competitiveness of single stores under high store opening growth rates. In the future, as the company continues to run horse racing, the concentration of leading brands will further increase, and the duopoly pattern led by the Wanchen series and the very busy department will accelerate. The number of company stores is planned to exceed 10,000 by 2025.

The fee ratio was continuously optimized month-on-month, and profitability increased steadily after excluding share payment fees. In 2023, the company's gross margin was 9.3%, a year-on-year decrease of 6.7pct. Among them, the gross margin for edible fungi/snack sales was 5.7%/9.5%, respectively, and 10.5pct/4.9pct. The decline in edible fungus gross margin was mainly due to declining sales prices due to competition and demand. In terms of snack volume sales, the gross margin of 2023H1/H2 was 7.9%/10.0%, respectively. The gross margin improved significantly in the second half of the year, mainly due to significant revenue growth in the second half of the year. In terms of expenses, the company's sales expense ratio in 2023 was 4.7%, +1.1 pct. Mainly due to the expansion of the company's mass snack business, the sales expense ratio for the 2023H1/H2 mass sales business was 5.8%/4.7%, respectively. As the number of stores increased and supply chain construction gradually improved, the sales expense ratio gradually improved due to the scale effect. The management/finance/R&D cost rates were 4.8%/0.3%/0.04%, respectively, -1.1 pct/-0.2 pct/-0.3 pct. The net profit of the snack sales business for each quarter of 2023 was -012 million/-066 million/-0.43 million/0.16 billion, respectively. Excluding accrued share payments, it was -011 million/-31 million/0.05 million/70 million, respectively. The corresponding net interest rates were 2.0%/-2.2%/0.2%/1.8%, respectively. Operating efficiency and profit levels continued to increase steadily.

Profit forecast: The company's net profit for 2024-2026 is expected to be 1.60, 3.58 million yuan, and 568 million yuan, respectively, turning losses into profit, +123%, and +59% year-on-year. The latest closing price corresponding to 2024-2026 PE is 28x, 13x, and 8x, respectively. For the first time, coverage gives a “gain” rating.

Risk warning: franchise system management risks; market competition intensifies; new market development falls short of expectations