Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 3.499 billion yuan, a year-on-year increase of 20.22%; realized net profit of 73 million yuan, a year-on-year decrease of 49.21%; realized net profit deducted from non-mother of 122 million yuan, a year-on-year decrease of 14.95%. It is estimated that 23Q4 achieved revenue of 917 million yuan, an increase of 6.67% over the previous year; net profit loss of 85 million yuan, profit of 43 million in the same period last year; net profit loss of 24 million yuan after deducting non-return to mother, and profit of 49 million yuan for the same period last year. It is basically in line with the previous performance forecast and is in line with expectations. The dividend plan is a cash dividend of 5.0 yuan (tax included) for every 10 shares, with a dividend rate of 116%. In the first quarter of '24, the company achieved revenue of 916 million yuan, an increase of 15.41% year on year; realized net profit of 77 million yuan, an increase of 53.96% year on year; realized net profit of 68 million yuan without return to mother, an increase of 40.29% year on year. The performance was in line with expectations.
Investment rating and valuation: Based on cautious assumptions about the recovery of downstream consumption scenarios, we expect sales of frozen baked goods to increase 15% in '24 (25% in the previous 24 years), lower the 24-25 profit forecast, and add a 26-year profit forecast. Net profit for 24-26 is 2.83, 3.53, and 397 million ($379 million and $513 million before 24-25), respectively, with year-on-year increases of 288%, 24%, and 13%. Corresponding EPS is 1.67, 2.08, and 2.34 yuan (24-25), respectively (2.24 and 3.03 yuan a year ago). The current stock price is 22, 18, and 16x, respectively, corresponding to 24-26 PE. Despite being pressured to repair the consumer scenario in the short term, the company continues to summarize past experience, and changes around products, channels, and supply chains are beginning to bear fruit. Currently, the valuation is at a low PE/band level since listing, maintaining an increase in holdings rating. China's frozen baking industry is moving from an introduction period to a period of rapid development. Downstream demand for upstream semi-finished products is growing rapidly. LiGao has comparative advantages in scale, capital, management, and R&D. It is optimistic about the company's long-term growth space in the future, and it is recommended to continue tracking it.
Frozen baking has performed steadily for 23 years, and new cream products have grown significantly. According to the company announcement, by product, frozen baked foods/cream/fruit products/sauces/other baking ingredients achieved revenue of 22.11/6.54/1.87/2.33/ 187 million yuan, respectively, +23.93%/+27.65%/-8.45%/+18.12%, respectively. In terms of volume and price breakdown, the sales volume of frozen baked goods, cream, fruit products, and sauces was 910,000 tons/46,000 tons/12,000 tons/21,000 tons, respectively. Sales volumes were +18.8%/+21.8%/-7.8%/25.2%, respectively, and average prices were +4.3%/+4.8%/-0.7%/-5.6%, respectively. The increase in frozen baked goods is mainly contributed by supermarket channels and catering customers. The high growth in the cream business was mainly due to the impressive performance of new whipped cream products. Among them, the new UHT cream production line was put into operation for half a year and achieved sales revenue of over 150 million yuan. By channel, the distribution channel, supermarket channel, restaurant and new retail channel accounted for about 55%/30%/15%, respectively. Due to weak demand, the distribution channel for cake shops remained basically flat year over year 23. Due to the continuous growth of core products and new products, the supermarket channel increased by about 50% in '23. Thanks to the development of new customers, the total year-on-year growth rate of catering and new retail channels nearly doubled.
24Q1 frozen baking remained flat, with the same increase in baking ingredients by about 56%. According to the company's announcement, by channel, distribution bakery channels/supermarket channels/catering and new retail channels accounted for about 51%/31%/17% respectively. The distribution bakery channel increased by nearly 25% year-on-year, mainly due to the doubling of the cream business in the first quarter. The number of units in the supermarket channel declined over the same period last year due to the influx of high-tier cities returning to their hometowns during the Spring Festival and the influence of last year's higher base. Catering and new retail channels have benefited from direct supply chain customers and restaurant dealers all maintaining a relatively rapid growth trend, with an increase of more than 50% in the first quarter.
Stock payment fees are accrued at an accelerated rate, and phased cost investment has increased. According to the company announcement, the company achieved a gross profit margin of 31.39% in 2023, a year-on-year decrease of 0.38pct. Among them, the gross margin of frozen baked goods, cream, fruit products, and sauces was 30.5%/39%/28.4%/23.4%, respectively, -2.1pct/+3.9pct/-0.6pct/+2.7pct.
We anticipate that the decline in gross margin of frozen baked goods may be due to the company increasing its distribution channel discount promotion efforts as appropriate. In 2023, the company achieved sales, management, R&D and financial expenses of 13.5%/9.6%/4.2%/0.3%, respectively, compared with +1.6pct/+1.1pct/0.0pct/+0.6pct/, respectively. The increase in the sales expense ratio is mainly due to: 1) the increase in the number of transit warehouses and the increase in main line transportation costs; 2) the company actively hosts dealer conferences and industry baking exhibitions, and marketing expenses have increased. The increase in the management cost ratio is mainly due to an increase in employee remuneration and an increase in project conversion depreciation costs. The company's two incentive plans paid a total of $112 million in amortization expenses, of which the share payment fee included in the recurring profit and loss account was 55 million, and the share payment fee included in the non-recurring profit and loss account was accelerated due to the termination of the 2021 equity incentive plan. Additionally, the company accrued asset impairment losses of $0.3 billion (20,000 in the same period last year). The company achieved operating cash flow of 305 million in the full year of 2023 and 285 million/291 million/343 million from 2020 to 2022, respectively. The company's operating cash flow was stable. Overall, the company achieved a net profit margin of 2% in '23, a year-on-year decrease of 3.2 pct. After excluding share payment fees corresponding to equity incentives that did not involve cash outflows, the company achieved 5.3%/5,0% net interest rate to mother in '23, respectively, -2.2 pct/-2.5 pct.
Increased gross margin, optimized cost allocation, and 24Q1 profitability restoration. According to the company announcement, the 24Q1 company achieved a gross profit margin of 32.59%, an increase of 0.56 pct over the previous year. The main reason was 1) the increase in capacity utilization; 2) the company implemented measures related to procurement optimization one after another, and the average comparable procurement price dropped to a certain extent. The 24Q1 company achieved sales, management, R&D and financial expense rates of 12.1%/6.6%/3.6%/0.2%, respectively, +0.2pct/-0.7pct/-0.1pct/+0.0pct. The expense ratio is basically stable. Thanks to improved gross margin, the 24Q1 company's net margin increased 2.0pct to 8.3% year over year.
Stock price performance catalyst: revenue growth exceeds expectations, competitive landscape improves
Core hypothesis risk: food safety issues, increased competition in the industry