Event: The company released the 2023 Annual Report & 2024 Quarterly Report:

Full year of 2023: Achieved revenue of 7.056 billion yuan, -5.09% year on year; net profit to mother of 749 million yuan, -6.55% year over year; deducted non-net profit of 646 million yuan, -8.95% year on year.

2024Q1: Achieved revenue of 2,254 billion yuan, -5.01% year on year; net profit to mother 230 million yuan, -17.76% year on year; deducted non-net profit of 197 million yuan, -18.04% year on year.

Competition for C-end rice and noodles is intense, and revenue is under pressure. 2023: By product, the revenue for refrigerated and short storage/quick-frozen rice products/quick-frozen prepared food in 2023 was 0.95/58.29/ 1,076 million yuan, respectively, -8.29%/-9.46%/+29.44% compared with the same period last year. Looking at the B and C side, the retail market and catering market achieved revenue of 56.3/1.43 billion yuan respectively, -8.8% +17.9% year-on-year. Competition on the C-side of rice and noodles has been intense since the second half of last year. In particular, direct-run supermarkets have been hit hard. The 23Q4 supermarket market fell by more than 30%. Dumplings were affected by the price war, rice dumplings were affected by the Spring Festival stalled, and revenue pressure was obvious. 2024Q1: There was a slight improvement over the previous month, and the C side is still weaker than the B side. 2024Q1 Company's direct sales volume rebounded, down about 10%; distribution C side, down about 10% year on year; B side grew overall, with small B 11% + year over year and big B 80% + year over year, and the situation rebounded slightly.

Passive competition impacts profit margins, and 2024 is expected to respond more accurately and positively. Passive competition impacts profit margins, and 2024 is expected to respond more accurately and positively. In 2023, the company focused on controlling net interest rates. In an environment of fierce external competition, gross margin declined, mainly due to a decrease in revenue share of sales promotions plus high-margin gyoza rice dumpling rice dumplings. The company is expected to compete more actively and accurately in 2024, so that revenue can return to growth. 2023: Achieved a net profit margin of 10.62%, -0.15pct year on year, 9.15% net interest rate without return to mother, and -0.37pct year on year. Among them, the gross profit margin was 25.84%, the year-on-year -2.23pct, and the sales/management/R&D/finance expenses ratio was 11.48%/2.30%/0.47%/-0.19%, respectively, and -0.41/-0.64/-0.16/-0.02pct year on year. 2024Q1: Achieved net profit margin of 10.19%, YoY -1.58pct; YoY net margin of 8.76%, YoY -1.39pct; gross profit margin 26.60%, YoY -1.68pct; sales/management/ R&D/finance expense ratios were 12.23%/1.87%/0.34%/-0.12%, respectively, -0.38/-0.18/+0.06/+0.06pct

Profit forecast and investment rating: Sanquan Foods is the leader in frozen rice and noodles. After the first reform, the company's financial indicators such as net interest rate and ROE improved markedly. It is expected that the second reform will work together on new channels and categories to help the revenue growth rate reach the next level. Considering the intense competition for frozen rice and noodles this year, we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. We expect the company's revenue to be 72.8/78.2/8.44 billion yuan in 2024-2026 (76.4/8.27 billion yuan in 2024-2025), +3.2%/+7.9% year-on-year, and estimated net profit of 7.7/8.6/950 million yuan (previously estimated 2024-2025 was 81/90 million yuan), +2.2% YoY /++11.8%/+10.9%, EPS was 0.87/0.97/1.08 yuan respectively, and the corresponding PE was 14x, 13x, and 12x, respectively, maintaining the “gain” rating.

Risk warning: Food safety risk, raw material price fluctuation risk, risk of new product promotion falling short of expectations, industry competition exacerbates risks.