Core views
The main axis of the company's strategy was upgraded from “product+channel” two-wheel drive growth to “channel is king, product leadership, and system protection”, continuing to focus on the seven core categories, making every effort to polish the supply chain, integrating upstream extensions to build the entire industry chain, and implementing equity incentives to further improve and optimize the company's long-term incentive mechanism. The company's strategic shareholding in the Snack Group is very busy. It is expected that it will continue to expand the cooperative categories and further strengthen the supply chain advantages and scale effects. There will still be dividends from the snack channel within the next 1-2 years, the growth certainty is strong, and the company's upward trend will continue.
occurrences
The company released its report for the first quarter of 2024
The company released its 2024 quarterly report, achieving operating income of 1,223 million yuan, +37.00% year on year; realized net profit of 160 million yuan, up +43.10% year on year; net profit after deducting non-return to mother was 138 million yuan, up +40.08% year on year.
Brief review
Product+channel two-wheel drive to achieve high revenue growth
The company continues to focus on seven core categories, including spicy and braised snacks, deep-sea snacks, casual baking, potato snacks, konjac jelly pudding, egg snacks, and dried fruit and nuts, working together across all channels to promote the rapid development of large single products such as quail eggs and casual konjac. Q1 Spring Sugar and Wine Party Company officially launched the quail egg brand “Egg King”. This is the second sub-brand launched after the Big Devil, which strongly promotes the upgrading of quail egg products and the establishment of consumer mentality. Currently, quail eggs and konjac products are still growing, and the company's big single product strategy is expected to drive continued high revenue growth.
On the channel side, the company adheres to an omnichannel strategy, seizes mass sales channels and Douyin volume opportunities, continuously balances the share of various channels, and gradually decreases the share of supermarkets. Q1 Douyin and mass sales continue to achieve high growth. In 2024, Douyin will continue to focus on cost performance to seize e-commerce share. There is room for mass sales channels to open stores in the north, and the company is expected to continue to enjoy channel dividends.
Cost rates continue to be optimized, and profitability continues to improve
In the first quarter, the company achieved a gross profit margin of 32.10%, -2.47 pcts year on year, sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio of 13.00%/4.23%/1.30%/0.30%/0.30%, respectively, -0.77pcts/-0.15pcts/-1.43pcts. The decline in gross margin was due to major changes in the share of the channel structure, and the increase in the share of mass sales channels and Douyin channels. In fact, improvements on the cost side, lower raw material costs, and the company's efforts in quail egg bases and mango procurement reduced supply chain costs. The Q1 expense ratio continued to decline, and the net interest rate increased steadily. The net interest rate was 13.06%, +0.50pct year on year.
Mass sales stores continue to grow rapidly, and multi-category omnichannel growth
According to Frost & Sullivan data, the number of Snack Very Busy Group stores at the end of 2023 has exceeded 7,500. In 2024, Snack Very Busy and Zhao Yiming Snacks will open 6,000 new stores, and the mass sales channel will continue to grow rapidly in 24 years. After the company increased its capital and snacks are busy, the group is expected to continue to strengthen partnerships with leading mass snack sellers. We are optimistic that in 2024, the number of products entering the mass sales channel and the variety of SKUs will further increase, and large items such as casual konjac and quail eggs are expected to continue to increase rapidly.
Profit forecasting and investment suggestions: The company quickly responds to industry changes, reduces SKUs, focuses resources on large core products, increases scale effects, and grows rapidly in core categories. New products and channels contributed fully to the company's revenue and net profit, and profits improved markedly. We expect the company's revenue for 2024/2025/2026 to be 52.80/65.43/79.50, respectively, up 28%/24%/22% year on year, and net profit of 6.84/8.53/1.037 billion, respectively, up 35%/25%/22% year on year, maintaining the “buy” rating.
Risk warning: New product promotion falls short of expectations, and newly launched products may not meet consumers' tastes; new channels may not expand smoothly, and the snack franchise channel may reach a peak and then slow down. Fierce competition within the industry reduces the efficiency of single stores; competition in the snack industry intensifies, and various brands are drastically discounted to seize market share, causing the profit level of the industry to drop; due to the decline in consumer power, the revenue of the supermarket channel will shrink further; affected by the decline in consumption power, residents' desire to buy optional foods will decline, and snacks on a household basis will decline Decrease in purchases, or counties and villages, Small-brand products in low-tier cities are once again popular because of their low prices.