Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 24.559 billion yuan, net profit of 5.627 billion yuan, -9.21% year-on-year, net profit of 5.395 billion yuan, -9.57% year-on-year; 2023Q4 achieved revenue of 5.909 billion yuan, -9.30% year-on-year; net profit to mother of 1,298 billion yuan, -15.20% year-on-year; deducted non-net profit of 1.243 billion yuan, -15.39% year-on-year. 2024Q1 achieved revenue of 7.694 billion yuan, +10.21% year on year, net profit to mother of 1.919 billion yuan, +11.85% year on year, after deducting non-net profit of 1,860 billion yuan, +13.35% year on year.
In 2023, the company plans to distribute 0.66 yuan (tax included) per share and a discovery dividend of 3.66 billion yuan (tax included).
The channel structure continues to be optimized, and 2024Q1 got off to a good start in line with expectations. By category, the company's revenue for soy sauce/oyster sauce/sauce and other businesses in 2023 was 126.4/42.5/24.3/3.50 billion yuan, respectively, -8.8%/-3.8%/-6.1%/+19.4%. Looking at split prices, soy sauce/oyster sauce/sauce prices were -4%/-2%/-9%, respectively. Growth in the three major categories was under pressure throughout the year, but revenue performance from other products, including vinegar, cooking wine, and sauces, was impressive. Looking at the subregion, the North/Central/South/East/West segment revenue was -4.8%/-2.2%/-7.3%/-0.7%. The revenue volume of each region declined slightly. It was related to the pressure on the overall external environment and the company actively adjusted the channel structure and optimized the number of dealers. There was a net decrease of 581 dealers in 2023 (1253 fewer, 672 new). The 2024Q1 company's revenue resumed double-digit growth. Considering the impact of the Spring Festival stalled schedule and delivery pace, 2023Q4+2024Q1 revenue increased 0.8% year-on-year, in line with previous expectations. 2024Q1 Soy Sauce/Sauce/Oyster Sauce/Other Revenue was +10.1%/+6.4%/+9.6%/+22.1%, respectively. New categories continue to grow rapidly. Revenue in the East/ South/ Central/ North/ Western regions was +10.3%/+21.8%/+10.2%/+6.5%/+10.1%, respectively. The dealer structure continued to be optimized, and the total number decreased by 85 to 6506.
Changes in the product structure in 2023 led to a slight decline in profit levels, and 2024Q1 profit levels gradually recovered. Gross margin for the full year of 2023 was -1.0pct to 34.7% year on year. The increase in the proportion of new products with weak scale effects led to changes in product structure, and gross margin declined slightly throughout the year. In terms of expenses, the sales, management, R&D, and finance rates in 2023 were 5.3%/2.1%/2.9%/-2.4%, respectively, -0.1/+0.4/-0.0/+0.5pct. The cost ratio remained stable, and the annual net interest rate was -1.3 pct to 23.0% year on year. 2024Q1's gross margin recovered slightly to 37.3%, +0.4pct year on year; sales/management/R&D/finance expense ratios were 5.5%/1.6%/2.4%/-1.3%, +0.2/0.0/-0.4/+0.2pct, respectively. The slight increase in sales expenses was related to the slight increase in channel cost investment during the Spring Festival peak season. Q1 company's net interest rate was +0.4 pct to 25.1% year on year, and profit levels gradually rebounded.
With internal adjustments and energy reserves, an upward recovery of potential energy can be expected. After a year of internal adjustments in 2023, the company has achieved initial results in adapting to the diversification of channels and finding new product grippers. This year, the company proposed revenue targets of 275 billion yuan and profit of 6.2 billion yuan. It is expected that on the product side, the company will insist on putting users at the center and embrace consumer trends to create diversified, high-quality new products and increase the acquisition of new products. The channel actively embraces new retail and industrialization channels, and at the same time optimizes the channel structure to help dealers reduce inventory pressure, etc., and is expected to lay a solid foundation for long-term steady growth through active internal adjustments.
Profit forecast: We expect to achieve revenue of 275.1/301.8/33.34 billion yuan in 2024-2026, up 12.0%/9.7%/10.5% year-on-year, and achieve net profit of 63.0/69.3/7.73 billion yuan, +11.9%/10.1%/11.5% year-on-year, corresponding PE of 35/32/28X. We gave 38 times PE according to our 2024 results, with a target price of 43.05 yuan for one year, maintaining the “gain” rating.
Risk warning: Food safety risks; increased industry competition; risk of rising raw material costs; recovery in catering demand falls short of expectations; channel adjustment results fall short of expectations.