Core views:

Endogenous growth is steady, and food extracts expand rapidly. Tianwei Foods released its report for the first quarter of 2024, announcing 24Q1 revenue of 853 million yuan, +11.34% year over year; net profit to mother of 176 million yuan, +37.20% year over year; net profit after deducting non-return to mother was 147 million yuan, +23.47% year over year. Non-recurring profit and loss mainly came from Qianjihe's investment income and financial management income. Looking at endogenics and subsidiary food extracts, endogenous growth is expected to increase by 5% +. Sales of main products are good during the peak season in January and February, demand weakens during the March off-season, and Dahongpao is in the adjustment stage; it is expected that food extract will achieve relatively rapid growth, mainly due to the addition of food extraction personnel to accelerate the expansion of the product channel. By product, hot pot condiments/Chinese cuisine condiments/sausage and bacon condiments/other revenue was 2.93/4.95/0.33/0.30 billion yuan, up 1.18%/17.75%/21.79%/11.51% year-on-year. By channel, offline/online channel revenue was 719/132 million yuan, an increase of 2.94% /101.23% over the previous year. Online channels contributed a net increase in food extract, and Haorenjia e-commerce grew rapidly.

Improved costs and increased profitability. 24Q1 net profit margin +4.22 pct yoy to 20.90%, after deducting non-net interest rate +1.69pct yoy to 17.22%. Among them, gross margin was +3.44pct to 44.05% year-on-year, mainly benefiting from lower raw material costs, increased share of crayfish in high-margin products, and the combined effects of food extraction. According to Wind, the average price of oil/cayenne pepper/peppercorns decreased by 18.21%/7.32%/6.02% year-on-year in 24Q1. The 24Q1 sales expense ratio was +2.18pct year-on-year to 17.02%, mainly due to the increase in online expenses due to the food extraction table. The management/R&D expense ratio was -0.83%/-0.06% year-on-year. The decrease in the management expense ratio was mainly due to the reduction in equity incentive expenses.

Profit forecasting and investment advice. In 2024, the company began to expand its offline small B channel, and is expected to continue to grow at a high rate after the food extract product matrix is completed. Considering 24Q1 investment income, profit expectations are slightly revised. Revenue is expected to increase 15.76%/15.75%/15.42% year on year from 2024-2026, up 15.76%/15.75%/15.42% year on year; net profit to mother of 5.69/6.64/ 779 million yuan, up 24.49%/16.87%/17.31% year on year; corresponding to PE valuation 25/22/18 times. Referring to comparable companies, the 2024 PE valuation was given 28 times, corresponding to a reasonable value of 14.94 yuan/share, maintaining the purchase rating.

Risk warning. The boom in the industry fell short of expectations. The new product fell short of expectations. Channel expansion fell short of expectations.