23 Annual results were under pressure, and 23Q4 was actively transformed. On 24Q1, the company released its 23 annual report and 24Q1 results. Net profit/net profit to mother was 80.5/1.8/0.7 billion in 23, -14.8%/-46.3%/-68.8% year over year; corresponding to 23Q4, revenue of 2.05 billion yuan, -16.0% year over year, net profit/deducted non-net profit to mother of -0.1/-60 million (22Q4 was 0.5/-60 million). Affected by the decline in offline channel revenue/the shift in online channel traffic in '23, the company's performance was under pressure. Starting 23Q4, the company actively sought transformation, product price reduction followed a cost-effective route, and offline stores continued to adjust. The 24Q1 company achieved revenue/net profit/deducted non-net profit of 24.5/0.6/50 million, +2.8%/-58.0%/-48.7% over the same period last year. The annual sales savings were good. After the holiday, the company concentrated on optimizing bad stores, which lowered the overall operation of Q1. Furthermore, the company's annual dividend ratio was raised from 30% to 50%, increasing shareholder returns. EPS is expected to be 0.45/0.50/0.56 yuan in 24-26, with reference to a comparable 24-year PE average of 36x (Wind agreed), and 36x PE for 24 years, with a target price of 16.20 yuan to maintain “increased holdings”.

The Q1 group buying business performed well. 24 years after the price adjustment, the focus was on optimizing the e-commerce, offline franchise/direct operation/group purchase business revenue of 31.7/24.0/18.9/490 million yuan, compared to -32.6%/-6.7%/-0.5% year-on-year. The store adhered to the “good goods are not expensive” price strategy and enhanced product competitiveness by reducing the prices of more than 300 products. 24Q1 e-commerce, offline franchise/direct management/group buying business revenue, +6.7%/-16.0%/+57.3%, e-commerce and direct sales grew steadily. Offline franchisees showed impressive group buying performance due to a decline in store optimization; offline stores expanded steadily, with a net year-on-year increase of 67 to 3,293 stores in 23. The single-store model continued to be refined after the 23Q4 price reduction, and the offline channel is expected to continue to grow again as offline customer flow recovers and closing rates are optimized. By region, revenue in Central China, East China, Southwest China, South China, North China, and Northwest China was +0.5%/-2.7%/+8.2%/+19.0%/+21.0% year-on-year.

The cost-efficiency ratio weakened due to the decline in revenue in '23. Profitability in Q1 was greatly affected by price cuts, with gross margin +0.2pct to 27.7% year on year (Q4 -0.4pct year on year). The increase in gross margin in 23 was mainly due to increased revenue share of direct retail business with high gross margin (+7.1pct) and channel structure optimization; the year-on-year decline in Q4 gross margin was affected by product price reductions; the sales expense ratio in '23 was +0.9pct to 19.5% yoy (Q4 +1.4pct), and the management expense ratio was 5.6%, +0.5pct yoy (Q4 +1.1 pct year on year), the scale effect weakened, and finally recorded a net interest rate of 2.2%/-2.4% to mother in '23/23Q4, and -1.4/-4.4 pct year on year. In addition, the 24Q1 company's gross margin was -2.7 pct to 26.4% year on year, still affected by the 22Q4 price reduction. Sales and management rates were +0.4/-0.2 pct year on year, respectively. In the end, 24Q1 achieved a net interest rate of 3.7% to mother, -2.5 pct year on year.

Expect the results of the company's transformation to show and maintain the “gain” rating

Considering the impact of the company's price reduction and the optimization and repair of the single-store model, we lowered our profit forecast. We lowered our profit forecast. We expect EPS 0.45/0.50 (previous value 1.09/1.27 yuan) for 24-25, introduce EPS 0.56 yuan for 26 years, give 36x PE for 23 years, and target price 16.20 yuan (previous time 27.00 yuan) to maintain “additional holdings.”

Risk warning: industry competition intensifies, macroeconomic performance falls short of expectations, food safety issues.