Key points of investment

The company achieved both revenue and profit growth in 2023, and the inflection point in operation has already appeared. We are optimistic about the continuous recovery after the inflection point in the company's operations appears.

The 2023 results showed steady growth, and there was some recovery.

In 2023, the company achieved revenue of 3.083 billion yuan, an increase of 7.73% year on year; net profit to mother reached 232 million yuan, an increase of 44.73% year on year, and the performance achieved steady growth.

By product, the bakery application oil business achieved 1,511 billion yuan, a year-on-year decrease of 1.90%; whipped cream, dairy products, prepared baked goods, and fillings reached 5.70, 6.45, 3.31, and 16 billion yuan respectively, with year-on-year increases of 11.73%, 8.85%, 68.95%, and 12.80%, respectively. The company's overall business achieved positive growth, mainly due to the continuous recovery of the baking boom in 2023.

By sales model, dealers achieved revenue of 1,694 billion yuan in 2023, an increase of 6.73% over the previous year; direct management achieved 1,382 billion yuan, an increase of 9.05% over the previous year.

Along with the decline in raw material costs, gross margin recovered significantly

The company's gross margin in 2023 was 23.76%, up 2.03 pct year on year, mainly due to a decrease in the company's raw material costs. Among them, the gross margin of dairy products decreased by 8.30% year on year, mainly due to the increase in the company's operating costs; the gross margin of precooked baked goods decreased 4.27% year on year. Major product structure changes and the new production line built by Nanqiao in Shanghai is currently in a production capacity climbing period, leading to an increase in unit fixed cost sharing.

Sales/management/finance/R&D expenses in 2023 were 7.75%, 5.55%, 2.78%, and -1.29%, respectively, and +0.19pct, -0.17pct, +0.32pct, and -0.05pct, respectively.

Thanks to the increase in gross margin, the company's net profit margin increased in '23. Achieved 7.54%, an increase of 1.93pct.

The baking industry's boom continues to recover, maintaining a buying rating.

In 2023, along with the restoration of terminal demand, the company achieved both revenue and profit growth. We are optimistic about continued recovery after the inflection point in the company's operations becomes apparent. Considering that the current baking boom is still gradually recovering, and raw material prices are still high, the company is expected to achieve revenue of 34.97/39.95/4.610 billion yuan in 2024-2026, 13.44%, 14.25%, and 15.38%, respectively; realized net profit to mother was 3.04, 3.68, and 427 million yuan, respectively, 30.83%, 21.07%, and 16.07%, respectively. The corresponding PE is 23.68, 19.56, and 16.85 times, respectively.

Risk warning: fluctuating raw material costs, weak terminal demand, capacity expansion falling short of expectations