Introduction to this report:

The performance exceeded expectations, and the results of the channel reform were fully reflected as highlights. Looking at endogenous and external extension in the long term, Delicious Fresh is expected to successfully achieve the goals of the three-year action plan.

Key points of investment:

Maintain the “gain” rating. Maintain the company's 2024-2026 EPS forecast of 0.96/1.23/1.61 yuan, compared to -56%/+29%/+31%. Refer to Haitian Flavor, Qianhe Flavor, Hengshun Vinegar Industry and Dongpeng Beverage to give the company 5.4X PS in 2024, and raise the target price to 40.29 yuan (previous value was 33.33 yuan).

The performance exceeded expectations, and the effects of the channel reform were evident. 2024Q1 achieved revenue/net profit of 1,49/240 million yuan, +8.6%/60% year-on-year, of which Delicious Fresh achieved revenue/net profit of 1,46/ 240 million yuan, +10/ 60% year on year. Looking at the subregion, the East China market showed a significant increase of 24.48%, mainly because the company began strengthening support for leading dealers in Q1, and dealers with large stocks were mainly concentrated in the East China market.

Structural optimization+cost reduction have driven significant improvements in profitability. The gross margin of 2024Q1 was +5.6 pct year on year, mainly due to the decline in the price of raw materials such as soybeans and the optimization of the product structure; due to this, the net margin increased by 5.96 pct year on year; in the context of reforms promoting internal efficiency improvements, the cost ratio for the period of the 2024Q1 company was also simultaneously optimized, and the sales/management/R&D/finance cost ratios were -0.85/-0.34/-0.03 pct year on year, respectively.

Internal efficiency is gradually improving, and high-quality development can be expected. Since the restructuring of the company's board of directors, the company has now completed the adjustment of its marketing structure and personnel. The next step is to improve efficiency from the inside out and speed up reform and optimization. Considering that the company currently has huge potential space for nationalization, we are optimistic that the company will expand internally and externally in the context of gradual improvement in management efficiency, thus successfully achieving the goal of a delicious three-year action plan.

Risk warning: Management optimization falls short of expectations; lawsuits affect net profit, etc.