Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 799 million yuan, +0.10% year over year; net profit to mother of 135 million yuan, -5.42% year over year; net profit after deducting non-return to mother of 131 million yuan, +2.07% year over year. In 4Q23, the company achieved revenue of 180 million yuan, -5.67% year on year; net profit to mother of 0.28 million yuan, -13.91% year on year; net profit after deducting non-return to mother of 0.28 million yuan, -13.91% year on year. In 1Q24, the company achieved revenue of 166 million yuan, -17.92%; net profit to mother of 0.19 million yuan, or -46.94% year-on-year; net profit after deducting non-return to mother of 0.19 million yuan, or -46.36% year-on-year.

Demand is recovering weakly, and new channels are being developed steadily. By product, in 2023, the revenue of beef/poultry/pork/lamb/aquatic fish/aquatic shrimp/other products was 3.22/1.32/0.59/0.17/1.15/0.96/047 billion yuan, respectively, -4%/+7%/+22%/+2%/-7%/+6%, respectively, and sales of beef products were under pressure. By channel, in 2023, the revenue of franchisee stores/distributors/wholesale/direct sales and other/e-commerce customers was 4.28/0.97/2.13/0.14/0.02 billion yuan, respectively, compared with +1%/-23%/-2%/+26%/-72%, respectively. In '23, the company developed new supermarket businesses and achieved revenue of 0.3 million yuan. In terms of investment promotion, in 2023, the company will net open 132/51/46/98 franchise/dealership/supermarket customers/wholesale customers to 1823/728/83/535. In 1Q24, the company opened net franchise/dealer/supermarket customers/wholesale customers - 7/15/4/12 to 1816/743/87/547.

Expenses have increased, and profitability is under pressure. In 1Q24, the company's gross profit margin was 25.00%, down 1.21pct year on year; sales expense ratio was 6.00%, up 1.69pct year on year; gross sales margin 18.99%, -2.90pct year; management expense ratio was 7.53%, +2.94 pct year on year; R&D expense ratio was 0.55%, year on year +0.04pct year on year. The company invested a lot of overall resources, and when the new plant was launched, related expenses also increased, which had a certain impact on the profit side.

Backed by the Chaoyang Circuit, the product channel is progressing steadily. On the channel side, in terms of retail channels, the company will continue to promote store expansion efforts, focus on the East China region, encrypt the offline sales network, sink from Tier 1 and 2 cities to Tier 3 and 4 cities and townships, optimize store management capabilities, and encourage capable store owners to open multiple stores. In the wholesale channel, we will deepen customer cooperation for hotels, restaurants, and group meals, implement the “1+N” model, develop major customers through cooperation with major dealers in different regions, and achieve resource development on an ad hoc basis. Channels such as supermarkets will also gain strength simultaneously. On the product side, the company will continue to develop products with leading quality and cost in the future to create diversified products.

Investment advice: Maintain a “buy” rating. According to the annual report and quarterly report, considering the slow recovery in consumer demand, the rate of improvement in the penetration rate of prepared dishes and the speed of the company's channel expansion are relatively slow, we expect the company's operating revenue for 24-26 to be 870/9.87/1.088 billion yuan, respectively (10.11/1,187 million yuan in the previous 24/25 year), and net profit of 144/1.67 billion yuan (185/211 million yuan in the previous 24/25 year), maintaining the “buy” rating

Risk warning: channel expansion falls short of expectations; raw material price fluctuations; food safety incidents.