1Q24 results are in line with our expectations

The company announced 1Q24 results: revenue of 950 million yuan, -7.1% year on year, net profit to mother of 41 million yuan, up 70.6% year on year, net profit after deducting net profit of 31 million yuan, up 426.3% year on year.

The 1Q24 results were in line with our expectations.

Development trends

Weak demand dragged down 1Q24 Cheese's revenue performance, and the company's share continued to rise. Dragged down by weak consumption, the company's cheese revenue in 1Q24 was -3% year-on-year, putting pressure on year-on-year performance. Looking at a month-on-month increase of about 9%, an improvement over the previous month. By category, we expect 1Q24 cheese bar income to be year-on-year or still under pressure, and household table income may be better than cheese sticks year over year. Our grassroots research shows that 1Q24's share of the cheese/cheese stick market has steadily increased slightly, demonstrating the company's strong brand strength and business resilience as a leader in the industry. Furthermore, the company continues to promote a “two-wheel drive strategy” to vigorously expand diversified new products on the C-side and B-side: 1) The C-end market, the company developed new SKUs around cheese sticks to break the crowd. In addition, it also launched a series of new products such as small cheese cubes, cheese pudding, small cheese triangles, and quadruple cheese corn chips; 2) In the B-side market, the company's newly launched new products such as cheese sauce, whipped cream, and mascarpone have become high-quality “domestic substitutes”. Among them, the new mascarpone products launched at the end of 23 performed brilliantly.

Cost reduction and efficiency increased profit margins, and 1Q24 profit margins improved as scheduled. 1Q24's gross margin was +0.4ppt to 33.1% year over year, mainly due to lower costs and lower gross margin trading business than overall; in terms of rates, 1Q's sales/management rates were -1.9/-0.3ppt year on year, respectively, mainly benefiting from the company's active control of cost investment and improving organizational energy efficiency. Furthermore, benefiting from the acquisition of Jilin Technology, minority shareholders' equity decreased by about 10 million yuan year-on-year, and the net interest rate/deducted non-net interest rate in 1Q24 improved 2.0/2.7ppt to 4.3%/3.3% year-on-year, respectively.

Pay attention to demand improvement and new product development, and wait for the company's operations to improve month-on-month. Looking ahead to 24 years, there is still uncertainty about the recovery in consumer demand. Cheese categories are greatly affected by consumer demand due to preferential choices. It is recommended to focus on subsequent improvements in market demand. In addition, over the past year, the company has continued to expand the room temperature cheese category, successively launched small cheese cubes, small cheese triangles, etc., and also launched new products such as mascarpone cheese on the family restaurant side. It is recommended to pay attention to the company's revenue recovery as new products expand in the future. In terms of profit margins, considering falling costs, we expect the company's gross margin to improve year over year in '24, sales rates are expected to continue to decline, and profit margins are expected to increase year over year 24.

Profit forecasting and valuation

The profit forecast for 2024/25 is basically maintained. The company traded at 42.2/29.5 times the 24/25 P/E; maintained a target price of 17 yuan, corresponding to 57/40 times 24/25 P/E and 34.3% upward space, maintaining an outperforming industry rating.

risks

Demand is weak; competition is intensifying; new products are not performing as well as expected.