Incident: The company released its 2023 report and 2024 quarterly report. In 2023, it achieved operating income of 1.63 billion yuan (+65.7%) and realized net profit of 60 million yuan (-24.9%); 2024Q1 achieved operating income of 400 million yuan (-11.1%) and realized net profit of 0.3 billion yuan (+9.3%). In addition, the company plans to distribute a cash dividend of 0.10 yuan (tax included) to all shareholders, and each share will be increased by 0.4 shares from the Provident Fund.

The integration of Runying and Panyuan supply chains has shown results. In 2023, lactic acid bacteria drinks, probiotic food, and commodity supply chains achieved operating revenue of 580 million yuan (-10.9%), 160 million yuan (+206%), and 810 million yuan (+463%); the 2024Q1 probiotic drink, probiotic food, and commodity supply chains achieved revenue of 190 million yuan (+1.1%), 40 million yuan (+25.5%), and 150 million yuan (-30.4%) respectively. 1) The Spring Festival misschedule affected beverage revenue in the fourth quarter. Add exclusive core functional strains to enhance product competitiveness, and launch new flavors such as passion fruit flavor and lemon oolong flavor. 2) The probiotic business integrates Junyao Runying. In 2023-2025, Runying will use recovery, rapid growth, and expansion as the development path to drive Runying's growth. In 2023, Runying will achieve revenue of over 100 million and turn losses into profits. The company is technologically advanced in the starter business. It has been selected in the internationally renowned starter supplier list, and is expected to expand further in 2024. 3) Panyuan's supply chain achieved large double-digit growth in both revenue and net profit, with a net increase of 1,100 customers in 2023.

Changes in business structure affect profitability. 1. In 2023, 2024Q1 gross margins were 24.4% (-11.2pp) and 29.5% (+6.9pp), respectively, mainly due to changes in business structure. 2. In terms of cost rate, the 2023 sales expense rate, management fee rate, R&D expense rate, and financial expense ratio were 11.5% (-7.5pp), 7.8% (-0.5pp), 1.5% (-0.3pp), and -0.4% (+1.2pp); the 2024Q1 sales expense ratio, management fee rate, R&D expense rate, and financial expense ratio were 10.8% (+0.8pp), 8.4% (+2.7pp), 1.9% (+1pp), and -0.3% (+0.1pp), respectively. 3. In 2023, 2024Q1 net interest rates were 4% (-3.5pp) and 6.5% (+0.9pp), respectively. In 2023, due to the merger of Junyao Runying and Panyuan supply chain businesses, the company's profitability changed greatly. The company's profitability will gradually pick up as prices increase and new probiotic products are launched.

Reorganize Runying Biotech to enhance probiotic business capabilities. In February 2023, the company completed the bankruptcy and restructuring of Runying Biotech. Junyao Runying has developed and produced more than 60 probiotic strains in China. It has a resource library of more than 4,000 probiotic strains with independent intellectual property rights, leading the business scale and technical capabilities in China. After the integration, the two sides can form collaboration in terms of strain reserves, production technology, and overseas markets, which will further enhance Junyao Health's competitiveness in the probiotic business. At the end of 2023, Runying obtained the A+ supplier qualification of the world's leading dairy company, laying a solid foundation for subsequent development.

Profit forecast: The company's net profit for 2024-2026 is expected to be 78.1 million yuan, 100 million yuan, and 130 million yuan, respectively, and EPS is 0.18 yuan, 0.24 yuan, and 0.31 yuan, respectively. The corresponding dynamic PE is 46 times, 35 times, and 27 times, respectively.

Risk warning. Raw material price fluctuation risk; risk of production capacity release falling short of expectations; food safety risk.