Incidents:
On April 23, 2024, Yanjin Shop released its report for the first quarter of 2024. 2024Q1 achieved revenue of 1.23 billion yuan, +37.00% year over year; achieved net profit of 160 million yuan, +43.10% year over year; realized net profit without return to mother of 138 million yuan, +40.09% year over year.
Investment highlights:
Revenue continues to grow and actively promote category brands. The company's revenue growth rate in the first quarter was impressive. Even after excluding the impact of the Spring Festival stalled period, 2023Q4+2024Q1 achieved a total revenue of 2,334 billion yuan, +28.47% year-on-year, and maintained a good growth trend. On the category side, the company focuses on seven core categories, continues to deepen the “1+7” multi-category multi-brand strategy, and makes every effort to make sub-brands such as “Big Devil” konjac vegetarian belly and “Egg King” healthy quail eggs into leading brands in the industry. On the channel side, the company insists on intensive omnichannel cultivation, continues to develop BC supermarkets, snack sales, e-commerce and distribution channels, and actively explores potential channel growth opportunities. It is expected that all channels will achieve good growth in the first quarter.
The channel restructuring brought about a slight year-on-year decline in gross margin, and net profit margin to mother rose year-on-year for five consecutive quarters. 2024Q1's gross margin was 32.10%, -2.47pct year over year, and +1.04pct month-on-month. It is expected to be mainly due to the decline in the share of high gross margin channels and the rapid expansion of new quail eggs during the period when gross margin is climbing. The cost side continues to be optimized. The company's sales, management, and R&D expenses in Q1 2024 were 13.00%/4.23%/1.30%, respectively, -0.77pct/-0.15pct/-1.43pct, respectively. Among them, R&D expenses declined significantly. It is expected that R&D expenses, which are the main difficult points, have already been invested in the early stages. In the context of continuous rate optimization, the 2024q1 company's net interest rate to mother was +0.56pct year on year to 13.05%, achieving five consecutive quarters of year-on-year increase, demonstrating the company's strong management and operation capabilities.
Revenue growth can be expected throughout the year, and intensive supply chain cultivation brings profit resilience. Looking ahead, revenue-side channel products are driven by two wheels, and omni-channels go hand in hand. The snack sales channel is expected to continue to enjoy the dividends of snack store expansion and deepening cooperation under the merger of snack busy snacks and Zhao Yiming. Give full play to the advantages of multiple categories of products and continue to cultivate category brands. On the production side, give full play to the advantages of manufacturing enterprises. With the implementation of the results of the company's upstream extension, such as building a 10,000 ton potato powder production and processing base within 2024, the full commissioning of the 3 million quail breeding base in Egg King Ji Phase II, and the improvement of lean production capacity, the gross margin of the product is expected to continue to increase, and profitability will increase as the scale effect continues to be released.
Profit forecasting and investment ratings: The company excels in manufacturing, and strong organizational capabilities give the company insight and ability to seize opportunities. The year-on-year rise in the company's net interest rate for five consecutive quarters indicates that the company's profitability continues to be optimized. In the future, with the implementation of more supply chain capacity, profitability is expected to continue to be optimized. Intensive channel and product cultivation helps the company maintain steady revenue growth. We adjusted the company's profit forecast. The company's revenue for 2024-2026 is estimated to be 52.53/64.26/7.717 billion yuan, respectively, net profit to mother of 6.63/8.20/989 million yuan, EPS 3.38/4.18/5.05 yuan respectively, corresponding PE is 22/18/15X, respectively, and the rating is upgraded to a “buy” rating.
Risk warning: 1) rising raw material prices; 2) channel expansion falling short of expectations; 3) further decline in supermarket traffic; 4) increased competition in online channels; 5) food safety issues.