Incident: On April 26, the company announced that it had revenue of 24.56 billion yuan (YoY -4.1%, same below), net profit to mother of 5.63 billion yuan (-9.2%); 24Q1, revenue of 7.69 billion yuan (+10.2%), and net profit to mother of 1.92 billion yuan (+11.9%). Furthermore, the company's total dividends in 2023 accounted for about 70% of net profit attributable to mother.
Other products performed well, and 24Q1 got off to a good start. 23 Overall, external pressure combined with the company's internal adjustments led to a 4% year-on-year decline in revenue. By product, soy sauce/sauce/oyster sauce revenue was -8.8%/-6.1%/-3.7%, respectively. The performance of core products was lackluster, but revenue from other categories was +19.4% year-on-year, accounting for an increase of 3.0 pcts to 15.3% year over year. In the subregion, East/South/Central/North/West revenue was -7.3%/-2.2%/-4.2%/-4.8%/-0.7%, respectively. By channel, offline/online -3.9%/-10.1% year over year, of which the number of dealers was 6591, a decrease of 8.1% year over year. 24Q1 revenue increased 10% year over year, achieving month-on-month improvement. Excluding Spring Festival delays, 23Q4 to 24Q1 revenue was +0.8%; by category, 24Q1 soy sauce/sauce/oyster sauce/other revenue was +10.1%/6.4%/9.6%/22.1% year over year; by region, east/southern/central/north/west revenue was +10.3%/21.8%/10.2%/6.5%/10.1%; by channel, offline/online ratio.
Changes in product structure led to fluctuations in net interest rates in '23, and lower costs in 24Q1 drove an improvement in profitability. 23 Full year: Net interest rate due to mother was 22.9%, -1.3 pcts year over year. The specific split for the whole year, with a gross margin of 34.7%, -0.9 pcts year over year, mainly due to: 1) the increase in the share of oyster sauce with lower gross margin and other categories; 2) the growth rate of middle and high-end price products is slowing down due to consumption classification. The sales expense ratio was 5.3%, or 0.1 pcts year over year, mainly due to improved internal management efficiency. The company actively carried out soy sauce ice cream promotion activities and cooperated with CCTV to enter the Gaoming factory to revitalize the brand vitality of an old condiment brand. The management cost rate was 2.1%, +0.4 pcts year over year, mainly due to increased labor costs. 24Q1: Net interest rate due to mother was 24.9%, +0.4 pcts year on year, and net interest rate after deducting non-return net interest rate +0.7 pcts year on year, mainly contributed by gross profit margin, investment income and income tax. Looking at the breakdown, the gross margin was 37.3%, +0.4 pcts compared to the previous year. Thanks to the decline in the prices of raw materials such as soybeans and packaging materials, the company continued to optimize the supply chain and improve production and marketing efficiency, effectively exploiting operating potential. The sales expense ratio is 5.5%, +0.3 pcts year on year. It is estimated that part of the cost of investment at the beginning of the year was due to deep channel cultivation; the management expense ratio was 1.6%, the same as the previous year.
Wait for sales to pick up in the short term to drive channel repair, and focus on product and channel changes in the medium to long term. In the short term, 1) Revenue side: If macroeconomic recovery continues, it is expected to drive demand for B-side catering to achieve further restorative growth. At the same time, the C-side base is expected to decline, compounded by three quarters of inventory removal and a low reporting base, and the revenue side is expected to maintain a relatively rapid growth rate; 2) Cost side: 24Q1 soybean and packaging prices are declining year on year, which is expected to continue this trend throughout the year. At the same time, the company locks in prices for some raw materials, which will contribute to cost dividends.
Looking at the long term, on the one hand, we actively pay attention to customer structure optimization and channel system restoration progress, and on the other hand, on the product side, focus on health-oriented condiments such as specialty prepared dishes, catering complex, organic, and low-sugar and low-salt condiments.
Investment advice: Net profit from 2024 to 2026 is expected to be 61.7/70.3/8.01 billion yuan, respectively, +9.7%/13.9%/14.0%, EPS is 1.1/1.3/1.4 yuan, and the corresponding PE is 35/31/27X. Considering that the company has long-term competitiveness as a leading condiment company, short-term positive adjustments are expected to drive performance improvement and increase the dividend ratio to return shareholders to maintain the “recommended” rating.
Risk warning: risk of competition exceeding expectations, risk of falling demand, risk of food safety.