Event: The company's 2023 revenue -18.5%, net profit to mother -108.7%; 2024Q1 revenue +142.4%, net profit to mother +209.6%. In 2023, the company achieved operating income of 1.41 billion yuan (-18.5% YoY), net profit to mother of 1.09 million yuan (-108.7% YoY); 2024Q1 achieved operating income of 380 million yuan (+142.4% YoY), and net profit of 41.17 million yuan (year-on-year loss to profit).

The gross profit margin and net margin of 2024Q1 sales rose sharply year on year. 23Q1/23Q2/23Q3/23Q4 quarterly revenue was -53.8%/-33.5%/-16.7%/+31.2%, and net profit to mother -233.4%/-107.5%/-79.9%/+158.7% YoY. As overseas customers ended inventory removal, the company's revenue and net profit recovered quarterly. The gross sales margin in 2023 was 19.3% (-3.0pcts year over year). The cost rate for the period was 17.4%, of which the sales expense ratio was 7.2% (+2.2 pcts year over year), mainly brand and product advertising, domestic market channel construction, etc.; the management fee rate (including R&D) 9.9% (+1.3 pcts year over year), including the impact of share payment expenses; and the financial expense ratio was 0.3% (+2.2 pcts year over year). Net sales margin was -1.1%, down 8.6pcts year over year. 2024Q1 gross margin was 24.4% (YoY +10.3pcts), sales expense ratio 4.6% (YoY -6.1pcts), management expense ratio (including R&D) 7.6% (YoY -12.3pcts), financial expense ratio -0.6% (YoY -8.9pcts), net sales margin was 10.9%, up 34.8pcts yoy.

The staple food and wet food business grew rapidly, and domestic sales continued to grow. By product, 1) in 2023, animal skin chewing gum contributed 420 million yuan (YoY -22.1%), accounting for 30.0%, gross profit margin 15.0% (YoY -1.6pcts); 2) Vegetable chewing gum contributed revenue of 420 million yuan (YoY -34.8%), accounting for 30.0%, gross profit ratio 24.4% (YoY -4.2pcts); 3) Nutritious meat snacks contributed 320 million yuan (YoY -5.7%), accounting for 22.6%, gross profit margin 18.7% (YoY -3.2pcts); 4) staple food and wet food contributed revenue Contributing Revenue of 210 million yuan (+31.3% year over year), accounting for 14.9%, gross profit margin 20.1% (+1.5pcts year over year). By region, 1) Foreign sales in 2023 were 1.06 billion yuan (-27.1% YoY), accounting for 75.2%, gross profit margin 17.9%; 2) Domestic sales were 350 million yuan (+27.0% YoY), accounting for 24.8%, and gross margin increased 0.1 pcts to 23.7% year over year.

Investment advice: The company is a leading domestic pet chewing gum company. It has comprehensive capabilities in products, brands, channels and R&D. As overseas customers end inventory, new production capacity is gradually released, and the domestic market layout is increased, performance is expected to continue to grow. We expect the company's 2024-2026 net profit to be 143 million yuan, 174 million yuan, and 208 million yuan, respectively. EPS was 0.56 yuan, 0.68 yuan, and 0.82 yuan respectively. The closing price on April 26 was 24, 20, and 17 times PE, respectively, maintaining the “gain” rating.

Risk warning: risk of raw material price fluctuations, risk due to exchange rate fluctuations, risk of changes in the international political and economic environment, risk of developing and promoting new products and private brands