Incidents:
The company released its 2023 annual report and achieved revenue of 4.115 billion yuan, +42.22% year over year; net profit to mother 506 million yuan, +67.76% year over year; net profit after deducting non-return to mother of 476 million yuan, +72.84% year over year. Among them, 23Q4 achieved revenue of 1,111 billion yuan, +20.22% year on year; net profit of 110 million yuan, +32.62% year over year; net profit after deducting non-return to mother of 100 million yuan, +21.23% year on year.
The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 1,223 billion yuan, +37.00% year over year; net profit to mother 160 million yuan, +43.10% year over year; net profit after deducting non-return to mother of 138 million yuan, +40.08% year over year.
Key points of investment
Revenue analysis: Revenue performance is outstanding, and omnichannel and multiple categories are flourishing. In '23, the company achieved revenue of 4.115 billion yuan, +42.22% (of which Q1: +55.37%; Q2: +57.59%; Q3: +46.17%; Q4: + 20.22%).
1) By category, 23 years of spicy brine snacks/casual baking/deep-sea snacks/potato snacks/egg snacks/dried fruit nuts/konjac jelly pudding/others achieved revenue of 14.82/6.27/6.19/3.60/3.19/2.67/2.17/ 225 million yuan, year-on-year, +56.71%/12.75%/10.65%/29.98%/594.52%/37.19%/125.67%/2.73% of the new quail eggs and konjac snacks. Express delivery 84.95%
2) By channel, direct supermarket revenue was 334 million yuan, -10.03% year over year, mainly due to the company's active contraction of this channel; sales and other channel revenue was 2,952 billion yuan, +40.35% year over year, mainly due to rapid growth in snack sales channels and further extension and decline in the company's distribution network. The number of dealers at the end of '23 was 3,315, a net increase of 832; e-commerce channel revenue was 828 million yuan, +98.04% year over year. The high increase in e-commerce channels was mainly due to the significant growth of the Douyin and Kuaishou platforms.
Profit analysis: Cost dividends are superimposed on supply chain advantages to improve profitability. The gross margin for 23 was 33.54%, -1.18 pct year on year, and the gross margin for 23Q4 was -0.18 pct to 31.06% year on year. Although the cost of core raw materials declined in 23, the increase in the share of low-profit channels such as mass selling snack stores dragged down gross profit. On the cost side, the sales/management expense rates for 23 were 12.53%/4.44%, respectively, compared to -3.27/-0.08pct. The main reason was the change in cost investment due to differences in channel structure. The 23q4 sales expense ratio was +0.41pct year-on-year to 13.17%, mainly due to increased equity payment fees and higher promotion expenses during the Spring Festival. The leading total cost strategy combined the company's supply chain advantages. The scale effect led to an increase in net interest rate. The gross sales margin reached 21.01% in '23, an increase of 2.09 pct over year; net interest rate to mother was 12.29%, +1.87pct year on year; 23Q4 net profit margin was 9.90%, +0.93pct year on year, mainly due to changes in channel structure.
24Q1 business analysis: The performance is outstanding, and the development situation can continue. 24Q1 achieved revenue of 1,223 billion yuan, +37.00% year-on-year, and the company's growth potential continues under the omnichannel strategy. 24Q1 gross margin was 2.47pct to 32.10% year-on-year, mainly due to a decline in the company's share of high-margin channels and an increase in the share of low-profit channels such as e-commerce and snack sales. 24Q1's sales/management/R&D expense ratios were 13.00%/4.23%/1.30%, respectively, -0.77/-0.15/-1.43pct, respectively. Mainly due to improved cost investment efficiency and scale effects, the net interest rate increased slightly. Along with supply optimization, single product release and production efficiency improvements, profit elasticity is expected to be further unleashed.
24-year outlook: Intensive cultivation channels focus on categories and continuously optimize the supply chain. The company continues to focus on seven major categories. On the one hand, it focuses on shaping consumer brand mentality for core categories and building brands such as “Egg King” and “Big Devil”; on the other hand, it actively explores market consumer trends and reserves new categories to enrich the product matrix. Currently, the company is actively expanding channels such as mass selling snack stores, Douyin Kuaishou social e-commerce, etc., and operates various channels in detail through channels adapted to different specifications such as loose name and quantitative packaging. The company's core products all use self-built supply chains to lay out projects such as potato powder processing and quail breeding. As the level of intelligent manufacturing increases and the supply chain is extended, it can further consolidate the cost advantage, support the company's omni-channel layout strategy, and drive channel expansion and profitability improvement.
Medium- to long-term outlook: Channel structure continues to be optimized to adapt to channel chain value allocation. The company continues to promote omnichannel coverage, actively expand new channels such as mass sales snack stores and campus stores, and vigorously develop e-commerce channels. The channel structure is expected to be further optimized and driven by the release of various single products. Judging from the evolution of the channel chain, the current snack supply chain has been shortened, downstream stores and consumers emphasize high efficiency and high turnover, the premium capacity of midstream brands has weakened, and the scale effect of upstream snack producers and the advantages of its own supply chain are prominent. We believe that the company's own supply chain and excellent organizational capabilities are in line with the current channel value distribution logic, which is expected to help omnichannel layout and product launch.
Investment advice: There is sufficient space for omni-channel and multi-category layout, and the company has excellent grasp of emerging categories and market insight. Supply chain and organizational efficiency advantages support companies to actively embrace emerging channels, and scale effects can further drive profitability improvement. We forecast that the company's revenue growth rates from 2024 to 2026 will be 27.9%, 22.1%, and 20.5%, respectively, with net profit growth rates of 31.9%, 27.8%, and 23.5% respectively, EPS of 3.40 yuan, 4.35 yuan, and 5.37 yuan respectively. The corresponding PE is 22.0x, 17.2x, and 13.9x, respectively, covered for the first time, giving a “buy-A” recommendation.
Risk warning: Risks of rising raw materials, increased channel competition, declining supermarket traffic, falling short of expectations in new product promotion, food safety issues, etc.