Matters:

The company released the 2023 annual report and the 2024 quarterly report. 23 The annual revenue was 3.499 billion yuan, +20.22% year-on-year; net profit to mother was 73 billion yuan, -49.21% year-on-year. 23Q4 achieved revenue of 917 million yuan, +6.67% year over year; net profit to mother - 85 million yuan, previous value of 43 million yuan. 24Q1 achieved revenue of 916 million yuan, +15.31% year-on-year; net profit to mother was 77 million yuan, +53.96% year-on-year.

Commentary:

23Q4 was dragged down by revenue cuts in rebates and Spring Festival delays. Steady growth resumed in 24Q1. Among them, cream led to improvements in bakery stores, continued to increase in restaurants, and declined year-on-year under a high business base. Company23's annual revenue was 3.50 billion yuan, +20.2% year over year. By business, frozen baking/cream/fruit products/sauce revenue was +23.9%/+27.6%/-8.4%/+18.1%, respectively. By channel, the company 23's annual distribution/supermarket/catering channels each accounted for about 55%/30%/15%, respectively. Among them, supermarket/catering revenue was +50%/nearly doubled, respectively, while the frozen baking distribution channel remained flat. 23Q4 revenue slowed year-on-year. First, weak external demand and the impact of the Spring Festival stalled period. Second, the increase in rebates directly deducted revenue from dealers at the end of the year, excluding the error period factors Q4+Q1, which achieved a steady 10.8% double-digit increase. 24Q1 revenue was +15.3% year-on-year, basically in line with previous expectations. Among them, revenue from baking ingredients was about +56% year-on-year, mainly due to the good growth of UHT series cream, which led the cream sector to double in 24Q1, and frozen baking remained basically the same year on year. By channel, distribution bakeries/supermarkets/restaurants decreased by +25%/higher units/ +50% year-on-year respectively. The decline in supermarket channels was mainly affected by high-tier cities returning home during the Spring Festival and the higher base that doubled last year, while the high revenue increase in restaurants and new retail channels benefited from the rapid growth of direct-supply restaurant chain customers and dealers.

Profits were under pressure in '23, and efforts were made to reduce costs and increase efficiency in '24. Q1 first tested the results of adjustments, and profit margins were restored first. The company's 23 annual gross profit margin was 31.4%, -0.4 pcts year on year. At the same time, there was a significant increase on the cost side. Among them, the increase in storage and transportation expenses and business promotion expenses in terms of sales expenses, accelerated extraction of share incentives in Q4 management expenses, and increased R&D expenses. In addition, asset impairment losses were accrued at about 31.1 million. The net profit margin was 2.0%, -2.9 pcts year over year, with significant profit pressure for the whole year. Since '24, the company has focused on improving efficiency, reducing costs and increasing efficiency. The 24Q1 company's gross profit margin was 32.6%, +0.6 pcts year-on-year, mainly due to increased capacity utilization and procurement optimization measures, which led to a decrease in the average price of raw materials. On the cost side, sales and R&D expenses rates remained stable year on year, in line with the company's budget control goals. The management fee ratio decreased by 0.7 pcts year over year. After excluding the impact of share payments, the comparable management fee ratio increased by about 0.5 pcts compared to the same period last year, but it is already lower than the average for the whole of last year. Also, considering the government subsidy contribution of about 9 million, the final 24Q1 net interest rate was 8.4%, +2.1 pcts year on year. After excluding equity incentive fees, the net interest rate was 8.8%, +0.5 pcts year on year.

Despite weak demand, the company's flexible optimization strategies at the product channel level, combined with cost efficiency control, are showing initial results, and 24-year profit is expected to unleash good elasticity. Some investors are concerned about issues such as the declining share of semi-finished products and weak external demand. We believe that the company's increasing the importance of cream is a pragmatic response to the above issues. On the one hand, the price of imported cream is high, and the trend of domestic cream sales is clear throughout the year. Second, considering the impact of the external environment, semi-finished products still need to consolidate internal skills. Currently, using cream as a starting point can better open up and bind major customers and distributors. After the baking is streamlined next year, it is expected that the distribution channel will resume. double digits Growth, while supermarkets are actively exploring the introduction of other new products. It is expected to maintain steady single-digit growth under a high base. In line with customer development trends, there is a high degree of certainty in maintaining growth of 30% or more. Overall, revenue is expected to grow by about 15% over 24 years. In terms of profit, considering the company's key efforts to improve efficiency, the plan is to improve quality and efficiency in four areas, including implementing budget management and cost control, optimizing procurement management, optimizing warehousing and logistics layout, and strictly controlling staffing. The Q1 preliminary inspection and adjustment results will later be accompanied by a decline in the reporting base, a rise in production capacity for new products such as whipped cream, and further refinement of efficiency dividends.

Investment advice: The reform works for a long time, the profit margin is repaired first, the bottom layout is squatting and jumping, and maintaining the “strong push” rating. The 23-year company report was under extreme pressure, but after thorough analysis, the 24-year business strategy and approach were gradually optimized, and profit margins were first restored to a low base. At the same time, the categories were relatively optional, and the company's contrarian investment also expanded the cycle. Currently, the company has a very practical summary of experience and correct adjustment ideas, and at the same time solidly consolidates internal skills. Once demand picks up in the future, there is a lot of potential room for flexibility at the reporting level. We maintained the 24-25 EPS forecast of 1.77/2.42 yuan, and introduced a 26-year EPS forecast of 3.17 yuan. Referring to the current comparable company valuation, we gave the 24-year profit 25 times PE, corresponding to a target market value of about 7.5 billion dollars/target price of 44 yuan, maintaining a “strong” rating.

Risk warning: demand recovery falls short of expectations, increased market competition, high profit volatility, etc.