Incidents:
The company released its annual report for 2023, and achieved revenue of 2,065 billion yuan, +41.26% year over year; net profit to mother of 210 million yuan, +68.12% year over year; net profit after deducting non-return to mother of 186 million yuan, +64.50% year over year. Among them, 23Q4 achieved revenue of 572 million yuan, +26.51% year over year; net profit to mother of 76 million yuan, +122.76% year over year; net profit after deducting non-return to mother of 77 million yuan, +153.92% year over year.
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 540 million yuan, +23.58% year on year; net profit to mother of 74 million yuan, +87.73% year over year; net profit after deducting non-return to mother of 58 million yuan, +77.45% year on year.
According to the official WeChat account of Jinzai Food Group, the company proposed a goal of doubling for the next three years, with a compound growth rate of about 25% over the next three years.
Key points of investment
Revenue analysis: Quail egg production drives high growth, and large packaging+loose weight helps upgrade channels. In '23, the company achieved revenue of 2,065 billion yuan, +41.26% (of which Q1: +68.40%; Q2: +35.17%; Q3: +45.92%; Q4: +26.51%). The three-year multiplication target of listing was successfully achieved, and the 23Q4 growth rate slowed slightly during the Spring Festival.
1) By category, fish products/ poultry products/ soy products/ vegetable products achieved revenue of 12.91/4.52/2.17/ 0.72 billion yuan respectively in 23 years, +25.87%/147.56%/18.68%/88.24%, respectively. In the second growth curve of quail eggs, revenue exceeded 300 million yuan in 23 years, which led to a high increase in poultry products; the impressive growth in vegetable products was mainly due to the rapid growth of konjac.
2) By specification, according to the company's announcement, small packaging accounted for 49% of revenue, +16% year over year; large packaging accounted for 31% of revenue, +40% year over year; scattered packaging accounted for 20% of revenue, +197% year over year, and large packaging+loose sales accounted for more than 50%, driving the growth of high-potential channels such as BC Ultra, KA, and snack franchises, and the upgrading of the company's channel structure was very effective.
3) By channel, the company continued to promote steady omnichannel development. At the end of '23, the company had 3057 dealers (net increase of 790), including more than 500 distributors; at the end of '23, there were more than 100 cooperative snack franchisees, covering more than 20,000 stores; and in '23, Tmall/Douyin and other new media platforms achieved revenue of 0.44/103 million yuan, respectively, +32.79%/+142.60%.
Profit analysis: Cost improvement combined with scale effects, excellent profit performance. The company's gross margin in '23 was 28.17%, +2.54 pct year on year; in 23Q4 it was 32.61%, +7.91 pct year on year. The marked increase in gross margin was mainly due to a high decline in raw material costs; the increase in the company's category size led to the release of scale effects. In 23Q4, gross margin was further optimized due to factors such as new product strategy adjustments and Spring Festival stalled sales were reduced. Sales/management/R&D expense rates for 23 years were 10.76%/4.04%/1.92%, respectively, +0.09/-0.44/-0.14pct, respectively, and the overall cost rate was stable during the period; the 23q4 sales expense ratio was -1.97pct to 8.98% year over year, mainly due to a reduction in expenditure during the Spring Festival and an increase in scale. The company's net interest rates to mother in '23 were 10.15%, respectively, +1.62 pct; 23Q4 net interest rates were 13.36%, +5.77pct year on year, respectively. The significant increase in profitability in Q4 was mainly due to a sharp increase in gross margin and a contraction in cost investment.
24Q1 Business Analysis: Revenue growth slowed slightly, and profits continued to rise high. 24Q1 achieved revenue of 540 million yuan, +23.58% over the same period. The slight slowdown in growth was mainly due to online channel price management and cost investment adjustments. The growth potential of introducing more products into online channels is expected to gradually be unleashed in the future. The 24Q1 gross profit margin was 30.02%, +4.04pct year on year. The increase in gross margin was mainly due to the fact that raw material costs remained low and the company's scale effect. The 24Q1 sales expenses rate reached 13.12%, +1.24pct compared to the previous year. The main reason was that the company increased its brand promotion efforts. The net profit margin for 24Q1 was +4.66pct year-on-year to 13.63%. The scale effect was compounded by lean management, and the company's profitability continued to be optimized.
24-year outlook: The second curve has sufficient potential, and channel upgrades are progressing steadily. On the product side, quail eggs, the second-largest single product, are expected to continue to be sold as production capacity bottlenecks ease, channel distribution promotion, and brand awareness increases. Quail eggs have sufficient potential as a billion-level single product. On the channel side, large packaging and bulk packaging currently drive modern channel expansion. The company's rich categories and product specifications can further enhance the enthusiasm of dealers, and the channel structure upgrade is expected to continue to advance. On the cost side, the cost of core raw materials has improved in 24 years. For example, the cost of dried anchovies has improved along with the reduction in transportation costs and epidemic prevention costs; quail egg costs are expected to be optimized due to the optimization of the company's upstream supply chain and improved category maturity, and the 24-year gross margin is expected to be further repaired. Currently, the company's development strategy is clear, and the high-potential channel layout can further enhance the brand image and feed back distribution channels; in addition, the company continues to develop innovative flavors, differentiate and upgrade products, and the big single product strategy drives high performance growth.
Medium- to long-term outlook: Active expansion of modern channels, large packaging to enhance brand image, and diversification of categories to promote the company's growth. Currently, the company relies on large-scale packaging and active expansion of modern channels such as BC Ultra and CVS, and has sufficient potential for channel expansion. Second, the profit of the company's large packaging channel is higher than that of small packaging, which is more attractive to dealers, and along with channel upgrades and the improvement of dealer capacity, it helps the company enhance its brand image and occupy the minds of consumers. In addition, the company is actively developing new categories and flavors, and the new product reserve is expected to further drive the company's growth.
Investment advice: The second curve of quail eggs drives high growth, large packaging+loose name drives sales in modern channels and emerging channels. The company has plenty of room for channel expansion, and profit flexibility is expected to be gradually unleashed under cost optimization and scale effects. We forecast that the company's revenue growth rates from 2024 to 2026 will be 30.9%, 23.9%, and 20.9%, respectively; the net profit growth rates to mother will be 37.8%, 30.2%, and 25.1%, respectively; EPS will be 0.64 yuan, 0.83 yuan and 1.04 yuan respectively. The corresponding PE will be 22.5x, 17.3x, and 13.8x, respectively, covered for the first time, and give a “holder-A” recommendation.
Risk warning: Risk of raw materials rising, channel expansion falling short of expectations, new product promotion falling short of expectations, food safety issues, etc.