Incident: The company announced results for the first quarter of 2024. In 24Q1, it achieved operating income of 950 million yuan, -7.1% year on year; net profit to mother of 40 million yuan, +70.6% year over year; net profit after deducting non-return to mother of 0.3 billion yuan, +426.3% year on year.
Demand continues to weaken, and revenue in all categories is under pressure. 1) By product: 24Q1 cheese/liquid milk/trade revenue was 735/1.31/082 million yuan, respectively, -3.3%/-35.8%/-0.4% year-on-year, respectively. Revenue in various categories declined year on year, mainly due to the fact that consumer demand was still weak. 2) By channel: 24Q1 distribution/direct operation/trade revenue was 7.62/1.30/128 million yuan, respectively, -3.6%/+0.2%/-35.8% year-on-year, respectively. 3) By region: The revenue of the North District/Central District/Southern District in 24Q1 was 3.7 billion 387/187 million yuan respectively, -15.1%/+13.3%/-21.7%, respectively. By the end of 24Q1, the number of dealers in the North District/Central District/South District was 2131/1441/1235 respectively, a total of 4807, a decrease of 70/67/92 from the end of the previous year, a total net decrease of 229, and the number of dealers continued to be optimized.
Under active fee control, 24Q1 net sales margin improved year-on-year. 1) Gross profit margin: In 24Q1, the company achieved a gross profit margin of 33.09%, +0.4 pcts year-on-year. 2) Sales expense ratio: In 24Q1, the company's sales expenses rate was 22.4%, -1.85pcts year on year, mainly due to the year-on-year reduction in advertising and promotion fees and warehousing and handling fees. 3) Management expense ratio: The 24Q1 management fee rate was 5.38%, -0.34pcts year over year, mainly due to the year-on-year decrease in equity incentive expenses. 4) Overall, the company's net sales margin reached 4.35% in 24Q1, +0.99pcts year-on-year. 5) The company's net profit margin reached 4.35%, +1.98pcts year-on-year, mainly due to the acquisition of minority shareholders' shares in mid-'23. There is no need to confirm minority shareholders' profits or losses in 24Q1.
New products are being added quickly, and scenarios are broadened to increase consumer reach. The company's current product planning closely revolves around expanding the consumer base and expanding the consumption scenarios that are just needed. For example, room-temperature cheese sticks have entered the mass sales system, using the rapid expansion of channels to increase the reach of consumers; ready-made foods containing cheese, such as black golden beef rolls, frozen European buns, etc. have been introduced to increase consumption scenarios such as brunch.
In 24, the company strengthened the promotion of new products. The main strategies include: 1) focusing on introducing room-temperature cheese to meet consumers' snack needs; 2) refining low-temperature cheese to improve product quality; 3) launching gift boxes according to holidays to enrich the product line; 4) in terms of brand promotion, it will invite popular celebrities to cooperate to enhance brand exposure. The 24-year proposal focuses on the company's new product promotion progress and the development of room temperature channels.
Profit forecast, valuation and rating: Considering cheese as an optional consumer product, current demand is still weak. We lowered the company's 24-26 net profit forecast to 1.42/1.77/215 million yuan (16%/24%/26%, respectively), which is equivalent to 24-26 EPS of 0.28/0.34/0.42 yuan respectively. The current stock price corresponds to PE 46x/37x/30x, respectively. Considering that the company's leading C-side cheese position is still stable, the cheese industry has plenty of room to grow, maintaining the “gain” rating.
Risk warning: production capacity release falls short of expectations; growth of new products falls short of expectations; raw material prices rise; food safety