Incident: The company released its 2024 quarterly report. In 24Q1, the company achieved revenue of 750 million yuan, -1.5% year on year; realized net profit of 270 million yuan, +3.9% year on year; realized net profit of 260 million yuan without return to mother, +6.3% year on year.
Revenue growth is under pressure, and channel inventory is optimized. 24Q1's revenue growth is under pressure in the short term. It is expected that the main reason is the high base for the same period last year, terminal consumption power and household consumption scenarios are still under pressure. However, the company reformed the salesman assessment mechanism and changed the past assessment based on dealer transfer amount to an assessment based on dealer shipment value, reducing pressure on dealers, and it is expected that channel inventory will be significantly optimized.
Gross margin declined due to cost pressure, and sales expenses were greatly optimized. The company's 24Q1 gross margin was 4.2pct year-on-year to 52.1%. It is estimated that the main reason is the increase in the purchase price of vegetable heads and semi-finished mustard products in 2023, compounded by changes in product structure. 24Q1 sales/management/ R&D/ finance cost ratios were -5.6/-0.6/+0.2/-0.4pct to 12.2%/2.6%/0.3%/-4.3%, respectively. Sales expenses were mainly based on terrestrial terminal activities, the investment efficiency of product promotion expenses was strictly controlled, and the sales expense ratio dropped significantly. Taken together, thanks to significant rate optimization, the 24Q1 company's net interest rate was +1.9pct year-on-year to 36.3%.
Optimize the collaborative growth of various categories of expenses, and the cost dividend may be redeemed in 24Q2. At the end of 2023, a new chairman took office to promote organizational structure reform and optimization, improve assessment mechanisms and incentive policies, and stimulate organizational vitality.
By category, the company's resource investment in 2023 will focus on new mustard sauce, with less investment in the kimchi and radish categories; in 2024, the investment in various categories will be optimized to drive the kimchi and radish categories back to growth.
Channel-side companies continue to improve the multi-channel layout of restaurants, e-commerce, etc., develop professional distributors, enrich product categories, separate e-commerce channel products from offline, and position the complement of offline channels. Looking ahead, we expect that the declining base and gradual recovery in demand will drive revenue growth to recover month-on-month; on the cost side, the price of newly purchased greens will fall back to 800 yuan/ton in 2024. The new raw materials are expected to be put into use in May-June, and the cost reduction dividends may begin to be realized in 24Q2.
Investment advice: Maintaining the previous profit forecast, the net profit for 2024-2026 is expected to be 9.1/10.3/1.13 billion yuan, +10.6%/12.5%/9.4% year-on-year. The PE corresponding to the current stock price is 16/15/13x, maintaining the “buy” rating.
Risk warning: Consumption recovery falls short of expectations, category expansion falls short of expectations, food safety issues.