Incident: In 2023, we achieved operating income of 7.261 billion yuan, +9.64% year over year; net profit to mother was 344 million yuan, +46.63% year over year. 2023Q4 achieved operating income of 1,630 billion yuan, +8.45% year-on-year; net profit to mother was -45 million yuan, a year-on-year decrease of 58 million yuan. 2024Q1 achieved revenue of 1,695 million yuan, -7.04% YoY, and net profit to mother of 165 million yuan, +20.02% YoY.

Performance has been growing steadily, and the number of stores has increased. In 2023, fresh goods products/packaging products/franchisee management/other main businesses achieved revenue of 5.77 billion yuan/280 million yuan/80 million yuan/970 million yuan respectively, +6.1%/32.8%/11.4%/33.8% over the same period last year. The number of the company's stores increased net year-on-year by 874 to 15,950. In terms of store types, the number of company communities and street/supermarket complexes and other types of stores in 2023 was 73%/19%/8% respectively (71%/20%/9% for the same period in 2022, respectively).

Increased profitability. 2024Q1 net margin recovered to 9.4%. 2023Q4/2023/2024Q1 achieved a gross profit margin of 26.9%/24.8%/30.0%, compared to +4.4/-0.8/5.7pct. Since 2023Q4, the company's gross margin has improved, mainly due to the decline in raw material costs, which is gradually reflected in the reporting side. The 2023 sales/management rate was -2.3/-1.4pct year-on-year, mainly due to a decrease in marketing expenses and equity incentive expenses. The 2024Q1 sales/management rate was +1.1/0.0pct year-on-year. The increase in sales expenses was mainly due to a lower base last year. Net profit margin of 4.4%/9.4% was achieved in 2023/2024Q1, +1.4/2.2pct year over year.

Investment advice: We expect the company's 2024-2026 revenue to be 76.72/81.16/8.566 billion yuan, up 5.65%/5.79%/5.54% year on year; net profit to mother will be 7.18/874/988 million yuan respectively, up 108.53%/21.70%/13.09% year on year, corresponding PE will be 18/14/13X, maintaining a “buy” rating.

Risk warning: Increased competition in the industry, food safety issues, fluctuating raw material costs.