Incident: The company released its 2024 quarterly report. During the reporting period, the company achieved operating income of 775 million yuan, +4.50% year over year; realized net profit of 76.63 million yuan, +96.74% year over year; realized net profit deducted from non-mother of 72.2 million yuan, +127.94% year over year. Revenue grew steadily, and profits continued to rise high.

The basic oil market for baking applications is stable, and the dairy business is picking up

By product, during the reporting period, the company achieved revenue of 3.79/1.21/1.84/0.83/0.05 billion yuan in baking applications, respectively, or +7.87%/-13.45%/-17.05%/-3.14%/+10.37%. The dairy business picked up, and the revenue from precooked baked goods was estimated to affect the tonnage price. Looking at the subregion, 24Q1's overseas business continued its 23-year high growth trend, +93.47% year-on-year; East China and Northeast China achieved year-on-year growth of 16.04%/10.43%, respectively. By channel, the company's distribution/direct management channels were +5.47%/+3.39%, respectively, and the number of dealers was +45 year-on-year, but the number of dealers decreased by 49 compared to the end of '23.

The significant increase in gross margin resonates with performance. Strong profit elasticity continued to be released. During the reporting period, the company achieved a gross profit margin of 27.00%, +7.07/-0.36 pct year over year, respectively. It is speculated that mainly due to declining raw material costs, companies continued to release gross profit elasticity. In terms of expenses, the company's sales/management/R&D/finance expense ratios were +0.37/ -0.03/+0.68/-0.03pct year over year, respectively, and +1.19/+0.24/-0.95/0.03 pct, respectively. The overall cost ratio remained stable. Combined with the above, the company achieved a net interest rate of 9.89% in 24Q1, +4.64/-3.63 pcts year over month, respectively. Among them, the month-on-month reduction was mainly due to lower income tax expenses in 23Q4. There was still a significant increase from 7.54% net interest rate due to the full year of '23, and strong profit flexibility continued to be unleashed.

Production capacity is the foundation for growth, and overseas may become an incremental gripper

Since Q3 '23, the company has continued to achieve rapid growth in performance. At present, the net interest rate has gradually returned to the level of 21 years ago. On the production capacity side, the company is actively promoting the expansion of production at the old plant and the construction of a new plant. The automated pre-baking production line has been put into operation in 23, and production efficiency has improved rapidly. In the future, it will continue to expand the production capacity of frozen dough and pre-baked goods at production bases in Guangzhou and Shanghai; the company has completed the groundbreaking of the Chongqing factory in '23, and the first phase is expected to be completed and put into operation in 25Q3. Furthermore, the company takes overseas business expansion as an important future business plan. Currently, it has set up subsidiaries in Singapore, Hong Kong, and Thailand to operate the Hong Kong, Macao and Southeast Asian bakery markets, and overseas revenue is expected to continue to grow rapidly.

Profit forecasting and investment advice

Based on the annual report and quarterly report results, we slightly adjusted the net profit to the mother for 24-25. The company's net profit for 24-25 is estimated to be $3.40/435 million (the previous 24-25 year was 3.45/454 million yuan), and introduced a net profit forecast of 501 million yuan. Net profit to mother for 24-26 was +46%/+28%/+15%, corresponding to the 24-26 EPS of 0.80/1.02/1.18 yuan, corresponding to PE 22/17/15x, maintaining the “purchase” ” Ratings

Risk warning

Risk of downstream demand falling short of expectations; risk of fluctuating raw material prices; food safety risk