Incidents:
The company released its 2024 quarterly report. 24Q1 achieved total operating revenue of 1,223 billion yuan, an increase of 37.00%; net profit to mother of 160 million yuan, an increase of 43.10% year on year; net profit after deducting non-return to mother of 138 million yuan, an increase of 40.08% year on year.
Accelerate the development of multiple channels and multiple categories
The company focused on seven core categories, and achieved rapid development through multiple channels and categories. 24Q1 achieved revenue of 1,223 billion yuan, an increase of 37.00% over the previous year. With the increase in revenue and changes in channel structure and product structure, the company's operating costs also increased by 42.18% to 831 million yuan, and gross margin fell 2.47 pct to 32.10% year over year. Looking ahead to 2024, the company's gross margin is expected to gradually rise as quail egg production capacity climbs, supply chain efficiency increases, and raw material costs decline.
Cost reduction and efficiency have achieved remarkable results, and the level of profit continues to rise
In 24Q1, the company's sales expense rate/ management expense rate/ R&D expense ratio were 13.00%/4.23%/1.30%, respectively, -0.77/ -0.15/-1.43pct. Changes in the channel structure have led to a further decline in sales expenses. At the same time, the company continues to reduce costs and increase efficiency, and management expenses continue to be optimized. 24Q1's net interest rate was 13.06%, up 0.51 pct year on year, and net profit to mother increased by 43.10% to 160 million yuan.
Continue to lead the direction of new Chinese healthy snacks
The company made efforts to promote the sub-brand “Egg Yolk” in '24, focusing on the quail egg snack segment. It built a green egg quail breeding base in April 23. It has a high level of digitalization and standardization, obtained the quail egg industry's first “raw edible+non-resistant” double certification, and was evaluated by Sullivan as “No. 1 in the scale of quail farm farming in China”. Following the launch of the “Big Devil” brand in 23, which focuses on the vegetarian belly racetrack, the company once again promoted the implementation of the “1+7” product matrix on the basis of deep supply chain cultivation and accelerated the development of new Chinese healthy snacks.
Profit Forecasts, Valuations, and Ratings
Considering the accelerated development period of the company's multi-channel and multi-category departments and the continuous advancement of cost reduction and efficiency measures, we adjusted the 2024-2026 operating income to 52.774/65.19/7.909 billion yuan respectively, up 28.17%/23.61%/21.32% respectively, and net profit to mother was 6.79/8.70/ 1,096 billion yuan respectively, up 34.21%/28.20%/25.92%, EPS was 3.46/4.44/5.59 yuan/share, respectively, and the 3-year CAGR was 29.39% . Considering the company's cost leadership and promoting growth through multiple categories and omni-channels, with reference to comparable company valuations, we gave the company 25 times PE in 24 years, with a target price of 86.61 yuan, maintaining a “buy” rating.
Risk warning: channel expansion falls short of expectations; cost fluctuations; increased industry competition; food safety risks