Introduction to this report:

2024Q1's performance is in line with expectations, and the outlook is for the medium to long term. Driven by improved management efficiency, product/channel two-wheel drive is expected to help the company achieve excess profits.

Key points of investment:

Maintain an “Overweight” rating. Maintain the company's 2024-2026 EPS forecast to 0.52/0.62/0.74 yuan, +21%/20%/+19% year-on-year, and maintain the target price of 22.61 yuan.

The performance was in line with expectations, and the volume of “food extract” was driving growth. 2024Q1 achieved revenue of 853 million yuan, +11.34% year over year, net profit of 176 million yuan, +37.2% year on year, and realized deducted non-net profit of 147 million yuan, +23.47% year over year. The increase was mainly due to the volume of the online brand “Food Extracts”, due to the increase in online channels of 101.23% in 2024Q1, while the growth rate of offline channels was 2.94%, slowing down weak demand. In terms of the number of dealers, the net number of 2024Q1 distributors increased by 18 to 3,183.

Profitability improved significantly. 2024Q1 gross margin was +3.43 pct year on year, mainly due to a significant increase in the share of food extract in the high-margin direct business and a decrease in raw material prices; the net interest rate reached 20.9%, +4.22pct year over year, mainly due to an increase in the share of food ingredients with strong profitability and an increase in investment income; in terms of cost ratio, sales/management/ R&D/financial expense ratios were +2.18/-0.84/-0.07/+0.07, respectively. The increase in sales expenses ratio was also due to the increase in the share of food ingredients.

Employee shareholding is tied to the core backbone, and excess income can be expected in the medium to long term. The company launched a new round of employee stock ownership plans, binding 114 core middle and senior business leaders. The assessment target is based on 2023 revenue, and the revenue growth rate for 2024/2025 will not be less than 10%/26.5%, respectively. Reasonable task target setting is conducive to fully stimulating employee motivation. Overall, in the context of the continuous increase in the penetration rate of the remodulation industry, the continuous improvement in management efficiency is driving the dual expansion of products/channels. We are optimistic about the company's medium- to long-term excess revenue.

Risk warning: Significant intensification of industry competition, food safety risks, etc.