On April 26, the company announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 799 million yuan (YoY +0.1%), net profit of 135 million yuan (YoY -5.42%), and net profit of non-return to mother of 131 million yuan (YoY +2.07%). With 2024Q1, the company achieved operating income of 166 million yuan (YoY -17.92%), net profit attributable to mother of 119 million yuan (YoY -46.94%), and net profit not attributable to mother of 19 million yuan (YoY -46.36%). The performance fell short of expectations. In addition, the company plans to distribute a cash dividend of RMB 7.00 (tax included) to all shareholders for every 10 shares.

Investment highlights:

Demand for prepared dishes is weakening, and product revenue has mixed ups and downs. Since the second half of 2023, the recovery of restaurant chains has accelerated, but the consumption scenario for home catering has decreased, and demand for the C-side of prepared dishes has declined, hampering the company's performance. By product: Among meat and poultry products, the revenue of the main category beef products fell 3.85% year on year, and the revenue of poultry and pork products increased slightly, and lamb products performed well, with a year-on-year increase of 22.01%; among aquatic products, revenue from fish products increased 1.60% year on year, and shrimp products fell 7.28% year on year. Channel division: In 2023, the company actively developed direct management channels. Revenue increased 25.58% year-on-year, but distribution channel revenue fell sharply by 23.16%. In addition, in 2023, the company added a supermarket team responsible for expanding the supermarket channel business and building a multi-channel sales strategy to expand market coverage.

The gross margin remained stable, and the overall cost ratio increased. In 2023/2024Q1, the company's gross margins were 26.38%/25.00%, and +2.30/ -1.21pct year-on-year, respectively, and remained relatively stable. The overall cost ratio increased. Among them, the company's sales/management/R&D expenses rate in 2023 was 5.01%/5.37%/0.48%, respectively, +1.16/+1.47/+0.05pct, respectively; in the first quarter of 2024, the company's sales/management/R&D expenses were 6.00%/7.53%/0.55%, respectively, +1.69/+2.94/+0.04pct, respectively, leading to a decline in the company's net interest rate. Net interest rate for 2023 was 16.95%, down 0.99pct year on year; net interest rate for the first quarter of 2024 was 11.39%, down 6.23pct year on year.

An equity incentive plan was announced at the beginning of the year, which favors the standardized development of the industry. On February 24, the company announced that it plans to repurchase the company's shares at a price not higher than 45 yuan/share, with a repurchase amount of 25 million yuan to 50 million yuan. The company's share repurchase will be used for equity incentives, which will further improve the company's long-term incentive mechanism. On March 21, the six departments jointly issued the “Notice on Strengthening Food Safety Supervision and Promoting High-Quality Industrial Development”. For the first time, the definition and scope of prepared dishes were clarified at the national level, and guidance was put forward on improving the construction of a standard system for prepared dishes and strengthening the food safety supervision of prepared dishes. Ready-made dishes currently have problems such as low entry threshold, low concentration, and unimproved relevant standards. The publication of the “Notice” will accelerate the standardization process of the industry and promote the establishment and improvement of various system standards. As the C-terminal leader in the prefabricated industry, the company has excellent management capabilities in various supply chain links such as improved cold chain logistics distribution systems, production and sales, etc., and is expected to further increase its market share and usher in an inflection point in performance.

Profit forecast and investment advice: As the first stock of prepared dishes, the company focused on channel expansion and expansion, and achieved obvious results. Since the second half of 2023, the company's performance has been poor due to weak industry demand, but it is expected to benefit from standardized development of the industry and optimization of the competitive landscape in the long term. According to the latest data, we adjusted the company's profit forecast. The company's net profit for 2024-2026 is expected to be 1.38/1.44/153 million yuan (before the update, 2024-2025 net profit of 1.92/217 million yuan), an increase of 1.60%/4.50%/6.83% year-on-year, and the corresponding EPS is 1.00/1.04/1.11 yuan/share. The corresponding PE price on April 29 is 28/27/25 times, maintaining the company's “increase in holdings” rating.

Risk factors: risk of channel expansion falling short of expectations, risk of fluctuating raw material prices, food safety risk.