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

Full year of 2023: Achieved operating income of 2,369 million yuan, +16.31% year over year; net profit to mother of 301 million yuan, +39.78% year over year; deducted non-net profit of 219 million yuan, +12.66% year over year.

2024Q1: Achieved operating income of 624 million yuan, +15.72% year on year; net profit to mother of 61 million yuan, -20.36% year on year; deducted non-net profit of 52 million yuan, -7.04% year on year.

The B-side continues to perform well, and there are still delays in the idle moment. In 2023, companies B and C achieved revenue of 886.1.5 billion yuan, respectively, -0.6%/+29% year-on-year, with Yum, the largest customer, increasing by nearly 40% year on year; the B-side of 2024Q1 continued to perform well, with a year-on-year growth rate of close to 30%, and the C-side is expected to decline in single digits. The company's share of the largest customer continues to increase, and continues to perform well on the B-side. The empty 2023Q1 base is high. Currently, the organizational structure has been adjusted, waiting for C-side business improvements.

Product structure affects gross margin and drags down overall profit levels.

Full year of 2023: The company achieved a net interest rate of 12.71%, +2.13pct year on year, increasing the amount of land compensation due to confirmed non-profit and loss of 86 million yuan; deducted the non-net interest rate of 9.25%, or -0.28pct year on year.

Among them, a gross profit margin of 33.14% was achieved in 2023, -1.43pct year on year. The decline was mainly due to the decline in the share of vacant positions with high gross profit, the low gross margin of the bakery category being put into operation at Baoyan's new factory, and the decline in gross margin due to changes in compound preparation & drink dessert ingredients. The sales expense ratio was 14.64%, -0.61 pct. In 2023, management/finance/R&D expenses were 2.81%/-0.13%/1.97%, respectively, -0.06/-0.12/-0.15pct. Looking at the B and C side, the Idle Network achieved a net interest rate of 4.6%, and the B-side deducted a non-net interest rate of 12.1%, a decrease of 1+pct, mainly due to increased demand from downstream customers to reduce costs and increase efficiency.

2024Q1: The company achieved net interest rate of 9.74% to mother in 24Q1, -4.41pct year on year; deducted non-net interest rate of 8.39%, -2.05pct year on year, mainly due to declining gross margin. The gross profit margin was 32.04% in 24Q1, -3.05 pct year on year. This is due to a decrease in the share of idle time. 24Q1 sales/management/finance/R&D expense ratios were -1.24/-0.14/+0.08/-0.26pct, respectively.

Profit prediction and investment rating: Multi-category layout, large B-side space, can be expected for shoulder and waist customers.

According to the company's latest performance, considering the intensification of B-side competition, we lowered the 2024-2025 profit forecast and added the 2026 profit forecast. The company's revenue for 2024-2026 is estimated to be 27.3/31.5/3.63 billion yuan, respectively (the previous 2024-2025 forecast was 2.883/3.36 billion yuan), +15.1%/15.4% YoY, respectively; net profit to mother was 2.8/3.38 billion yuan, respectively (the previous 2024-2025 forecast was 3.09/ 368 million yuan), -7.5%/+16.7%/17.6%, EPS was 0.7/0.81/0.96 yuan, respectively, corresponding to current PE of 21x, 18x, and 16x, maintaining the “buy” rating.

Risk warning: Industry competition increases risks, new customer development falls short of expectations, raw material prices fluctuate greatly, food safety risks, and risk of major shareholders reducing their holdings.