On April 25, 2024, I would like you to release the 2023 Annual Report and the 2024 First Quarter Results Report.

Key points of investment

Revenue is growing steadily, and profit side improvements can be expected

The company's total revenue for 2023/2023Q4/2024Q1 was 1,728/6.37/494 million yuan respectively, up 23%/50%/19%, respectively. After deducting revenue unrelated to the main business, revenue of 1.67 billion yuan was achieved in 2023 (up 35% from the same period). The company's net profit for 2023/2023Q4/2024Q1 was -0.52/-0.11/013 billion yuan, respectively, and -1.89/-1.36/012 billion yuan for the same period in 2022/2024/2023Q1, respectively. The profit side under pressure in 2023 was mainly due to increased marketing expenses on platforms such as Douyin and intermediary expenses in snack channels. The 2024Q1 profit side achieved marginal improvement, and the cost investment effect is expected to gradually show. The gross margins of the 2023/2024Q1 company were 25.74%/29.39% respectively, with an increase of 3 pcts/3 pcts respectively. It is expected to be due to category innovation to increase product value/channel changes. Currently, futures prices for red dates, the raw material, have returned to normal, and the trend of stabilizing costs is expected to benefit the gross profit side. The 2023/2024Q1 sales rate was 21.07%/21.85%, 1pct/+2pcts year over year, respectively. The 2023/2024Q1 management rate was 7.60%/6.48%, with a decrease of 1 pct/0.2pct respectively. As a result, the company's net interest rate for 2023/2024 Q1 was -3.27%/2.45%, respectively, +11pcts/-0.3pct. Since the company currently focuses on online/snack/supermarket channels, it is expected that the company's subsequent sales expenses will increase. At the same time, the company proposes to optimize supply chain efficiency through “three guarantees, one reduction, one innovation”, and carry out refined management and cost optimization adjustments. With the release of scale effects, the profit side is expected to improve.

Red Xiaopai has strong growth potential, and the snack+supermarket channel can be expected

By product, revenue from jujube products/healthy fresh products/others/other business revenue in 2023 was 13.11/0.86/2.76/ 0.55 billion yuan, respectively, +49%/-9%/-9% compared to the same period last year. In 2023, the company launched a hyperbolic development strategy, using the gift business as the first curve to achieve steady growth, focusing on building Red Xiaopai products as the main driving force for the second curve business growth. In 2023, the revenue of the Red Xiaopai series products exceeded 200 million yuan. By sales model, online/offline revenue was 568/1,106 million yuan respectively, up 8%/35% respectively. The company adopted a channel strategy of “leading online, taking root offline” to create popularity through interested e-commerce, extend the upward share of traditional shelf e-commerce, build brand image through specialty stores, increase product exposure through supermarket channels, and achieve multi-channel coverage and online and offline integration. In 2023, the revenue of interest e-commerce, shelf e-commerce, supermarket channels, and snack channels was 2.48/3.19/0.55 billion yuan respectively. Among them, Douyin and Snack channels are developing well, leading the incremental channel. In 2024, the company plans to focus on supermarkets and snack channels that are in the climbing phase, which is expected to spawn new growth potential. Looking at offline regions, revenue within Henan Province/ Outside Henan Province/ Overseas was 484/6.13/ 0.08 billion yuan respectively, +19%/+53%/+10%, respectively. Market expansion outside the province was relatively good.

Profit forecasting

We are optimistic about the two-wheel drive of the company's products and channels, and continue to lead growth by adopting the channel strategy of “online leadership, live streaming; offline roots, store marketing; channel innovation, collaborative development” and the big single product strategy. According to the annual report and the first quarter report, EPS for 2024-2026 is expected to be 0.08/0.12/0.18 yuan, respectively. The current stock price is 82/50/35 times PE, respectively, maintaining a “buy” investment rating.

Risk warning

Macroeconomic downturn risks, rising raw materials risks, new product growth falling short of expectations, etc.