2023&1Q24 results are in line with market expectations
The company announced 2023 & 1Q24 results: the company's revenue/net profit after deduction of net profit of RMB 26.35/1.66/144 million yuan in 2023, up 7.0%/20.6%/26.6%; 1Q24 revenue/net profit to mother/ net profit after deduction of 2.07/-0.70/ -0.71 billion yuan, revenue -4.1% year-on-year. 2023&1Q24 results are in line with market expectations.
Development trends
Rice dumplings performed steadily in 2023, and stores continued to recover. 1) Product side: In 2023, the company's revenue from rice dumplings/mooncakes/meal/egg products and other products was +11%/-4%/+5%/-6%, respectively. In terms of volume, zongzi/mooncakes increased 15%/3%, respectively. In terms of price, zongzi/mooncakes were -3%/-7%, respectively, mainly due to weak demand side. 2) On the channel side, in 2023, store/e-commerce, supermarket/distribution channel revenue was +27%/+8%/-15%/+11%, respectively. In 2023, the company optimized stores through a “reduction, transfer, closure, and innovation” strategy. By the end of the year, the number of direct-run stores was reduced by 26 to 112, and the number of partner stores remained flat at 25. The first quarter is the traditional low season for zongzi products. Revenue fluctuates normally. We look forward to the performance of the core single product, zongzi, in the second quarter.
The 2023 price and channel structure will affect gross profit margins. In 2023, the company's net interest rate after deduction was +0.8ppt to 5.5% year-on-year, mainly benefiting from reduced income tax expenses. 1) The gross sales margin was -0.1ppt year over year, which was affected by the price reduction of rice dumplings/mooncake and the 12.3ppt gross margin reduction in supermarket channels. The gross margin in 2023 was -1.1ppt to 36.4% year over year; the sales expense ratio decreased by 1ppt to 20.9% year over year. 2) Management/R&D/finance expense ratios were +0.7/+0.1/-0.2ppt, respectively. The increase in management expense ratios was mainly due to the impact of equity incentive costs. In 1Q24, the company's net interest rate after deduction fell by 1.8ppt to -34.0%. The company's profit margin fluctuated normally during the off-season and needed to be observed in the light of the peak season.
2024 outlook: Rice dumplings contribute profit, non-rice dumplings contribute revenue, and stores continue to be optimized. On the product side, the company continues to create rice dumpling products, iterative innovation maintains a leading position and optimizes profitability; non-rice dumpling products create products such as mooncakes and frozen rice balls, contributing to growth elasticity. On the channel side, the company increased its scale through the establishment of outlets, innovated and transformed existing stores, explored new models of restaurants, and experimented with new platforms such as Douyin, Xiaohongshu, and Oriental Selection online. Overall, with strong brand strength, the company continues to expand categories and distribution channels, and we believe it is expected to maintain steady growth.
Profit forecasting and valuation
Considering that the consumer environment is still weak, the 2024 revenue was lowered by 18.5% to 2.99 billion yuan, the 2025 revenue was reduced by 3.36 billion yuan, the 2024 net profit was reduced by 30.8% to the mother's net profit of 208 million yuan, and the net profit to the mother in 2025 was first introduced. The current stock price transaction was estimated at 18.9/16.2 times P/E valuation in 2024/25, taking into account profit forecast adjustments and sector valuation adjustments. The target share price was lowered by 47.5% to 33.13 yuan/share , corresponding to the 2024/25 22.9/19.7 times P/E valuation, there is 21.4% upside compared to the current stock price. Maintain an outperforming industry rating.
risks
Consumer demand falls short of expectations, new product expansion falls short of expectations, fluctuating raw material prices, and food safety issues.