Event: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved total revenue of 1,901 million yuan, +27.69% year-on-year; net profit to mother was 134 million yuan, +31.43% year-on-year. In 4Q23, the company achieved total revenue of 573 million yuan, +25.02% year on year; realized net profit of 40 million yuan to mother, +23.15% year over year. In 1Q24, the company achieved total revenue of 463 million yuan, +8.04% year-on-year; realized net profit of 35 million yuan, +14.16% year-on-year.
Major customers lead growth, and the wholesale channel is progressing steadily. In terms of channels, the company increased its service efforts for major customers in 2023. By the end of December 2023, the number of the company's major customers was 197, an increase of 27.92% over the previous year.
In addition, the company is actively developing potential catering customers. In 2023, the company's direct sales model was 775.1911 million yuan, a year-on-year increase of 49.89%. The effect of the company's increased cultivation and support for core dealers in 2023 was obvious. The year-on-year growth rate of 20% dealer sales before 2023 was 18.43%, which is higher than the overall revenue growth rate of the company's dealer channel. At the end of 2023, the number of the company's dealers was 1,541, a year-on-year increase of 33.77%. The new portion was mainly segmented channel dealers. In terms of products, in 2023, the company's frying revenue was 870 million yuan, up 24.23% year on year; baking revenue was 355 million yuan, up 29.16% year on year; cooking revenue was 373 million yuan, up 26.41% year on year; and dish and other revenue was 295 million yuan, up 38.63% year on year. The 1Q24 performance growth rate has slowed. The main factors are expected: 1Q23 has a high base, a weak consumer environment, and increased competition in the B-side market.
The effect of scale is gradually showing, and profitability has increased. Along with the emergence of large-scale production advantages and product restructuring, overall gross margin increased. In 2023, the gross margin of the company's direct-operation/distribution business was -0.11/+0.81pcts to 21.01/ 25.06% year-on-year, and the gross margin of deep-fried products/baking/cooking/cooking products was +0.25/-0.50/-1.79/+3.55pcts to 21.78/22.71/24.64/ 27.48%, respectively. In 1Q24, the company's gross margin was +1.49pct YoY to 25.45%. In 1Q24, the company's sales/management/R&D/finance expenses ratio was +0.81/+0.53/+0.24/-0.37pct year-on-year to 5.89%/8.35%/1.06%/-0.13%, and the cost investment increased slightly.
The product channel is two-wheel drive and has long-term growth potential. In terms of channels, at the level of major direct sales customers, Yum China is a model for the company to cultivate major customers. In the future, the company will focus on major customers such as Haidilao, Wallace, and Hometown Chicken to continuously improve its service capabilities, develop and launch new products in a targeted manner, and broaden its product line. While serving existing major customers, we are gradually developing new snack, fast food, coffee, and tea chain customers. In terms of dealer channels, the company continues to serve and support core dealers to grow stronger and develop catering channel providers. In terms of products, the company continues to focus on the four major product lines of fritters, steamed and fried dumplings, baked goods, and rice cakes to stabilize its leading position in fritters products, while increasing the development and promotion of other major products, aiming to form a core product of 3-5 billion yuan within the next 3-5 years.
Investment advice: Maintain a “buy” rating. According to the annual report and quarterly report, considering the slow restoration and fierce competition of the consumer environment and the catering scene, we estimate that the company's revenue for 24-26 will be $22.33/26.19/$3,052 billion ($2,558.368 billion in the previous 24/25 year, respectively) and net profit of $1.61/2.00/$256 million ($206/273 million for the previous year 24/25, respectively). Maintain a “buy” rating.
Risk warning: New customer expansion falls short of expectations, increased market competition, food safety incidents.