Core views
The company's overall operating performance in 23Q4 & 24Q1 was under pressure, and revenue declined year-on-year in a single quarter.
By category, sales of meat, poultry, and fishery products are all under pressure. In terms of profit, the company's gross margin increased in '23, mainly due to a fall in the purchase prices of raw materials such as beef and pork, while on the cost side, profitability declined due to investment in marketing activities and the increase in upfront costs of putting in new production capacity. The company is also currently actively making adjustments. Based on last year's experience, the company is further optimizing sales channels, optimizing store operation capabilities, improving customer service levels, and improving channel operation efficiency. The commissioning of new production capacity provides strong support for the company's business expansion. If the demand side gradually recovers in the future, the company's operations are expected to improve.
occurrences
The company announced its 2023 Annual Report & 2024 First Quarter Report:
In 2023, the company achieved revenue of 799 million yuan, a year-on-year increase of 0.10%; net profit to mother was 135 million yuan, a year-on-year decrease of 5.42%; net profit after deducting non-return to mother was 131 million yuan, an increase of 2.07% over the previous year.
In the 23Q4 single quarter, the company achieved revenue of 180 million yuan, a year-on-year decrease of 5.67%; net profit to mother was 0.28 billion yuan, a year-on-year decrease of 13.91%; net profit after deducting non-return to mother was 0.27 million yuan, a year-on-year decrease of 7.14%.
In the 24Q1 quarter, the company achieved revenue of 166 million yuan, a year-on-year decrease of 17.92%; net profit to mother was 0.19 million yuan, a year-on-year decrease of 46.94%; net profit after deducting non-return to mother was 0.19 million yuan, a year-on-year decrease of 46.36%.
Brief review
Market demand performance is weak, and the overall revenue side is under pressure
The company's overall operating performance in 23Q4 & 24Q1 was under pressure, and revenue declined year-on-year in a single quarter.
By channel, the company's 23Q4/24Q1 retail channel (accounting for 65.49%/68.15%) sales fell 14.20%/16.99% year over year. Among them, by store type, the revenue of the franchise channel (accounting for 54.75%/54.73%) and the dealership channel (accounting for 10.73%/13.42%) decreased by 8.74%/16.12% and 34.25%/20.37%, respectively. As of the end of 24Q1, the company had 1816/743 franchisee stores, with a net increase of 25 franchisees in 23Q4 and a net decrease of 7 in 24Q1; the number of dealerships increased by 2/15, respectively. Meanwhile, the revenue of the company's 23Q4/24Q1 wholesale channel (accounting for 26.28%/23.48%) was +1.33%/-24.89% year-on-year. As of the end of 24Q1, the number of wholesale channel dealers was 547, with a net increase of 16/12 in 23Q4/24Q1. In addition, in '23, the company also added a supermarket team responsible for the development of supermarket channels. 23Q4 contributed 9.18 million yuan in revenue (accounting for 5.10%), and 24Q1 supermarket channel (accounting for 4.58%) sales increased 25.04% year-on-year. By the end of 24Q1, the number of supermarket customers was 87, with a net increase of 23/4 in 23Q4/24Q1. By product, sales of the company's 23Q4 meat and poultry products (accounting for 65.72%) fell 5.61% year on year. With the exception of pork (accounting for 7.85%) and lamb products (accounting for 2.21%), all other categories declined; while sales of the company's 24Q1 meat and poultry products (accounting for 60.76%) fell 21.36% year on year, and the revenue of all meat products declined. In terms of aquatic products, the company's 23Q4/24Q1 sales fell 16.57%/20.23% year on year (accounting for 23.70%/28.09% of revenue), and fish and shrimp products did not perform well.
The scale effect has weakened + the cost of new production capacity has declined, and profitability declined. The company's gross margin in 23Q4 was 27.15%, an increase of 3.43 pcts over the previous year. The increase in gross margin was mainly due to a decline in the purchase prices of raw materials such as beef and pork. In terms of expenses, the year-on-year changes in the company's 23Q4 sales/management/R&D/finance rates were +1.29/+2.77/+0.10/-0.84pcts, respectively. Among them, the increase in sales rates was mainly due to increased investment in personnel and marketing activities in line with related channel expansion needs; the increase in management rates was mainly due to the increase in the company's interest income; in the end, the company's 23Q4 net income rate decreased by 1.50 pcts to 15.65% year on year. Looking at the full year, the company's gross margin increased by 2.30 pcts. The year-on-year changes in sales/management/R&D/finance rates were +1.16/+1.47/+0.05/-0.72 pcts, respectively, and the net profit margin to mother decreased by 0.99 pcts to 16.95% year on year. As far as 24Q1 is concerned, the company's gross margin decreased by 1.21% to 25% year on year, the sales/management/R&D/finance rates changed by +1.69/+2.94/-0.04/-0.74pcts, respectively, and the net profit margin to mother fell 6.23pcts to 11.39% year on year. Affected by the decline in sales revenue, the scale effect decreased and the initial start-up costs of new plants increased, and the company's profitability declined a lot.
Optimize and adjust channel layout, and support business development with new production capacity
The prepared food industry is currently in a stage of rapid growth. In the short term, the company's operating performance is under pressure due to factors such as slow recovery in consumption power and an increase in industry participants. The company is also currently actively making adjustments. Based on last year's experience, the company is further optimizing sales channels, continuing to encrypt offline sales networks for retail stores, sinking into low-tier cities and townships, and optimizing store operation capabilities; implementing a “1+N” model for wholesale channels, deepening cooperation with hotel, catering and group dining customers, developing major dealer customers, improving customer service levels, and improving channel operation efficiency. Furthermore, the exploration of supermarket channels will also continue to gain strength, contributing to channel growth. In terms of production capacity, part of the company's new production capacity has been put into operation, and subsequent production capacity will be put into operation one after another according to demand, providing strong support for the company's business expansion. If the subsequent demand side gradually recovers, the company's operations are expected to improve.
Profit forecast: We expect the company to achieve revenue of 901, 10.02, and 1,109 million yuan in 2024-2026, and achieve net profit of 1.46, 1.64, and 186 million yuan, corresponding EPS of 1.06, 1.19, and 1.35 yuan/share.
Risk warning: 1) Food safety risk: Prepared food is a daily diet for mass consumption, and food safety is a top priority. If the company's products have food safety issues, the customer reputation accumulated in the early stages will also be lost, which will have a major impact on the company's current business. 2) Risk of rising raw material prices: The company's raw material procurement is mainly meat. Among them, pork prices, etc., have a fairly obvious fluctuation cycle. If the company cannot effectively cope with the adverse effects of cost changes, the company's profitability may decline. 3) The risk of worsening market competition: Currently, the prepared food industry is very popular, attracting a large amount of capital. If the company is at a disadvantage in market competition, the advantages accumulated in the early stages will not be able to be exploited, and the space for further development is relatively limited.