Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved total revenue of 8,046 billion yuan, -14.76% year-on-year; net profit to mother was 180 million yuan, or -46.26% year-on-year. In 4Q23, the company achieved total revenue of 2,046 billion yuan, -16.02% year-on-year; realized net profit to mother of -0.11 billion yuan, or -122.91% year-on-year.

In 1Q24, the company achieved total revenue of 2,451 billion yuan, +2.79% year-on-year; realized net profit of 62 million yuan, or -57.98% year-on-year.

The online business resumed growth, and the offline business continued to adjust. In the first quarter of 2024, e-commerce, offline franchise/direct management/group buying business had sales of 12.86/6.37/6.40/182 million yuan, compared to +6.65%/-16%/+10.16%/+57.32%. The group buying business growth rate was impressive. The online business resumed positive growth, and the offline franchise business was still under pressure. In 1Q24, the number of company stores decreased by a net of 140 to 3153.

The business continues to transform, and profitability is under pressure. The company's gross profit margin in the first quarter of 2024 was 26.43%, down 2.74pct. Taking into account the impact of the company's business transformation and market competition, the pressure on profitability is still strong. In 1Q24, the company's sales expense ratio also increased by 0.44 pct to 17.44%; the management expense ratio also decreased by 0.20 pct to 4.85%. Considering the decline in revenue scale, overall cost control is still quite strict. Overall, in 1Q24, the company's net interest rate to mother was 2.55%, a decrease of 3.69pct.

Investment advice: Maintain an “Overweight” rating. According to the annual report and quarterly report, considering the slow restoration of the consumer environment and the slow transformation of the company, we expect the company's 24-26 revenue to be 87.88/97.44/10.812 billion yuan (91.86/10.205 billion yuan in the previous 24/25 year) and net profit of 1.96 billion 2.25/274 million yuan, respectively (31/391 million yuan in the previous 24/25 year), maintaining a “gain” rating.

Risk warning: Increased market competition, food safety incidents.