Incident: Liangpin Store released its 2023 annual report and 2024 quarterly report. The full year of 2023 achieved operating income of 8.046 billion yuan, -14.76% year over year; net profit to mother 180 million yuan, -46.26% year over year; net profit after deducting non-return to mother of 65 million yuan, -68.82% year over year. 23Q4 achieved operating income of 2,046 billion yuan, -16.02% year-on-year; net profit attributable to mother of 0.11 million yuan, compared with 48 million yuan in the same period in '22; net profit after deducting non-attributable net profit of -57 million yuan, or -209 million yuan for the same period in '22. 24Q1 achieved operating income of 2,451 billion yuan, +2.79% year over year; net profit to mother of 62 million yuan, or -57.98% year on year; net profit without return to mother of 55 million yuan, or -48.69% year on year.

Online business revenue achieved positive growth in 24Q1, and offline business continued to adjust. By channel, the company's revenue side resumed positive growth in 24Q1. The company's online/offline channels achieved revenue of 12.86/1,499 billion yuan respectively, or +6.65%/+0.28% over the same period last year. 1) Online: In the context of the continued decline in e-commerce platform traffic, the company actively adjusted the operating strategies of various platforms, and achieved positive year-on-year revenue growth in 24Q1. 2) Offline: Affected by snack volume sales channels, the company's offline store business is under high competitive pressure. The 24Q1 direct-operation/franchisee retail/group buying business achieved revenue of 640/6.37/182 million yuan respectively, +10.16%/-16.00%/+57.32% year-on-year. Among them, revenue from the franchise business declined year on year, and the group buying business grew relatively steadily. As of the end of 24Q1, the total number of the company's stores was 3153, with a net decrease of 140 stores in 24Q1 (net reduction of 57 franchisees and a net decrease of 83 direct-run stores), and the number of stores that have been signed to open in 24Q1 is 25 (18/7 franchisees/direct-run stores, respectively). By region, Central China/East China/Southwest/South China/North China/North China and Northwest China achieved revenue of 6.63/1.96/2.14/1.48/0.55 billion yuan respectively in 24Q1, or -0.58%/-15.68%/-4.60%/-3.28%/-10.54%.

Product restructuring lowered the gross profit margin, and net profit to mother in 24Q1 turned a month-on-month loss into a profit. In terms of gross margin, for the full year of 2023/23Q4/24Q1, the company's gross margin was 27.75%/25.43%/26.43%, respectively, 24Q1 -2.74 pcts year over year, and +1.00 pcts month-on-month. Mainly, the company sorted out the product structure, and the price band for some products decreased, leading to a year-on-year decline in overall gross margin. On the cost side, sales expense rates for the full year of 2023/23Q4/24Q1 were 19.55%/20.63%/17.44%, respectively, 24Q1 +0.44pcts year over year, and -3.18pcts month-on-month. Management cost rates were 5.55%/5.95%/4.85%, 24Q1 -0.20pcts year-on-year, and -1.10pcts month-on-month, respectively. Overall, the company's net interest rate for the full year of 2023/23Q4/24Q1 was 2.24%/-0.54%/2.55%, respectively, and -3.69pcts year-on-year in 24Q1, recovering positive profit from month to month. Looking ahead to 2024, the company will push forward online channel reforms, strengthen refined management, and profitability is expected to be restored.

Profit forecasting, valuation and rating: Considering that the company's offline business is under high competitive pressure, the online business is in the adjustment stage. We lowered our 2024-2025 net profit forecast to RMB 287/317 million (down 25.58%/26.53% from the previous one), and added the 2026 net profit forecast to RMB 363 million; the corresponding EPS for 2024-2026 was RMB 0.71/0.79/0.91, and the P/E corresponding to the current stock price was 21/19/16 times, respectively. The company's business adjustments are conducive to long-term development and maintain a “buy” rating.

Risk warning: Online competition intensifies, raw material costs fluctuate, and store expansion falls short of expectations.