1Q24 revenue was slightly lower than market expectations, and non-net profit was basically in line with market expectations. The company announced 1Q24 results: revenue of 3.34 yuan, -3.2% year on year; net profit to mother of 57 million yuan, -3.8% year on year; net profit after deducting non-return to mother was 59 million yuan, +1.1% year over year. 1Q revenue was slightly lower than market expectations, mainly due to weak demand, and the deduction of non-net profit was basically in line with market expectations.

Development trends

The 1Q24 growth rate was still hampered by weak demand, and East China and Southwest China showed relatively steady performance. Looking at 1Q24 by region, revenue in East China/Central China/Southwest/South China was +1.8%, -14.7%, +4.1%, and -10.8% to 1.69, 0.66, 0.62, and 0.18 billion yuan, respectively. The performance of East China and Southwest China was relatively steady, while the weak performance in Central China and South China was mainly due to relatively weak demand and small customer fluctuations. The number of dealers in 1Q24 Company increased net by 42 to 2,627, with a net increase of 15, 14, 13, and 13 in East China/Central China/Southwest China/South China respectively. The number of dealers in other regions decreased year-on-year, mainly due to the company's optimization and adjustment of some smaller dealers.

1Q24 Cost reduction led to an increase in gross margin and a steady increase in deducted non-net profit margin. The gross margin of the 1Q24 company was +1.6ppt to 38.2% year on year. Despite the increase in new depreciation and amortization, it benefited from the reduction in the cost of the big package, and the increase in gross margin was quite good. In terms of expenses, the 1Q sales rate was -0.9ppt year on year, mainly due to a year-on-year decrease in advertising and promotion expenses; the 1Q management rate was +2.1ppt, mainly due to increased depreciation costs for the construction of a new science and technology innovation building and part of the initial cost of the building; and the 1Q financial rate was -1.6ppt year-on-year, mainly due to an increase in interest income. Furthermore, due to an increase of about 4.8 million yuan in non-operating expenses, the 1Q24 net interest rate was basically the same; the 1Q24 net interest rate after deducting non-net interest rate was +5.1 ppt year on year, which increased steadily.

Pay attention to demand improvement and channel expansion, and wait for the company's operations to improve. Looking ahead to 24 years, there is still uncertainty about the recovery in consumer demand. It is recommended to focus on subsequent improvements in market demand. The company cooperated with “Hua&Hua” at the end of July last year to fully upgrade the product packaging and marketing plan. The company plans to continue nationwide promotion this year. The company signed a new product spokesperson in April of this year. It is recommended to pay attention to the sales situation after the promotion of the company's new marketing plan; in addition, the company plans to increase dealer development and snack sales channel expansion this year. It is recommended to pay attention to the progress of subsequent channel development. In terms of profit margins, we expect that the decline in procurement costs of DaPao Fen in 24 will benefit the continued increase in gross margin. Expenses may remain relatively stable, and profit margins may be expected to improve.

Profit forecasting and valuation

Basically maintaining the 24/25 profit forecast, the company traded at 18/17 times 24/25 P/E; maintained a target price of 16 yuan, corresponding 23/21 times 24/25 P/E and 28% upward space, and maintained a rating of outperforming the industry.

risks

Demand is weak, industry competition is intensifying, and raw material prices are fluctuating.