Key points of investment
Incident: The company's 2024Q1 revenue was 1,012 billion yuan (yoy +10.04%, up 90.1% from 2019Q1), achieved net profit of 171 million yuan (yoy +2.22%, up 55.5% from 2019Q1), and net profit after deducting non-return to mother 67 million yuan (yoy +1.15%). Revenue was in line with expectations, and profit was lower than our expectations due to changes in product structure and high base for the same period last year.
The 2024Q1 catering business continues to recover, and other food products are growing rapidly. View 2024Q1 by product:
1) Mooncake business: revenue of 9.03 million yuan (yoy -20.09%), the apparent growth rate fluctuated greatly during the off-season; 2) frozen food: household economic demand declined, with revenue of 295 million yuan (yoy -4.1%); 3) Other food: revenue of 299 million yuan (yoy +27.56%), which showed impressive growth performance or was related to increased demand for New Year's products such as cured meat and pot dishes; 4) Catering revenue of 384 million yuan (yoy +13.33%) continued to grow steadily above the high base of the previous year. We expect continued recovery, mainly in the catering and travel markets It promoted the rapid recovery of restaurants during the Spring Festival season, and the new stores climbed the slope and gradually contributed to incremental revenue.
By the end of 2023, the company had 43 direct-run restaurants, including 26 “Guangzhou Restaurant” direct-run stores (net increase of 4 in 2023), 2 “Xingyue City” direct-run stores, and 20 “Tao Tao Ju” stores; the company authorized third parties to operate 18 “Tao Tao Ju” franchise stores.
Direct sales and distribution have gone hand in hand, and the number of distributors outside the province has declined, and revenue is growing rapidly. 1) Looking at the channel:
2024Q1 direct sales revenue was 193 million yuan (yoy +8.95%), and distribution and consignment channel revenue was 411 million yuan (yoy +9.01%). As of 2024Q1, the total number of dealers was 1,030, a net decrease of 42 month-on-month in 2023Q4, including a net decrease of 28 domestic and foreign dealers. We expect this is mainly due to the adjustment of the company's distribution channels and the decline in off-season mooncake dealers. 2) From a regional perspective: 2024Q1 has sales of 450 million yuan (yoy +6.62%) in Guangdong Province and achieved revenue of 140 million yuan (yoy +13.69%). The number of distributors outside Guangdong Province is declining and growing faster than within the province. We expect it to be related to the expansion of production capacity and the release of other food products. 2024Q1 achieved revenue of 12.24 million yuan overseas, with a growth rate of 70.54% under a low base.
Gross margin is declining, and cost control continues to be optimized. The company's overall gross profit margin in 2024Q1 was 29.8% (yoy-2.6pct). We expect this to be related to the increase in revenue share of low-margin products and fluctuations in production costs.
The 2024Q1 sales expense ratio and management expense ratio were 9.8% (-0.4 pct year on year) and 8.4% (year-on-year -0.7 pct), respectively. Internal cost reduction and efficiency continued, and the financial cost ratio was -0.7% (-1.3 pct year on year).
Profit forecast and investment rating: Considering 2024 as the year of mooncakes, the overall demand in the food industry may be under pressure. Based on conservative assumptions, we lowered the company's net profit to the mother in 2024-26 to 6.1/7.4/850 million yuan (value before 2024-25 was 8.5 million yuan and 970 million yuan), a year-on-year growth rate of 11/21/ 15%, corresponding to the 24-26 PE of 17/14/12x, downgraded the rating to “increase holdings”.
Risk warning: Competition in the industry intensifies, mooncake & frozen food operations fall short of expectations, and production capacity release falls short of expectations.