2023 profit was in line with market expectations, and 1Q24 profit slightly exceeded market expectations
Revenue in 2023 was $3,550 million, -1.46% YoY; net profit to mother was $332 million, +49.46% YoY. 1Q24 revenue -8.00% YoY; net profit to mother +20.87% YoY. Profit for 2023 is in line with market expectations. Since the cost side of 1Q24 still declined slightly year-on-year, 1Q24 profit slightly exceeded market expectations. The company's dividend ratio increased to nearly 100% in 2023.
Development trends
Average single-store revenue in 2023 is under year-on-year pressure, and we estimate that same-store revenue will still be under pressure under a relatively high base in 1Q24. 1) The net number of stores opened by the company in 2023 was 510. We used fresh goods revenue divided by the average number of stores during 2023 to obtain average single store revenue. This figure is about -10% year over year, and we estimate single-store sales/average price to be about -6% and -4% year on year, respectively. We think it is related to the opening structure (low revenue for newly opened stores in non-dominant regions), and also related to the relatively weak overall consumption environment and the company increased some mixed vegetable products to increase customer traffic. 2) 1Q24 faces a relatively high base. We estimate that the company's same store will still have a low double-digit decline, and the base pressure will gradually improve in subsequent quarters.
The year-on-year decline in 2023 costs led to a recovery in gross margin. There is still some room for 1Q24 costs, and the profit situation improved. 1) Gross profit margin: In 2023, the company's gross profit margin was 22.5%, compared to +6.5ppt. We estimate that it will mainly benefit from the reduction in purchase prices on the cost side (frozen beef, chicken, etc.). The 1Q24 company's gross profit margin was 20.9% (+2.2ppt year over year), and we estimate that there is still some room for decline on the cost side in 2024.
2) Expense rate: 2023 & 1Q24 sales expense rates were +2.3/+0.7ppt, respectively. Our estimates are mainly related to the company's increase in advertising fees and marketing expenses.
2024 outlook: We expect the revenue growth rate of the main business to improve, the 2H24toB business is expected to gain strength, and the cost side anticipates that there is still room for decline to drive room for improvement in net interest rates. The company announced a restricted stock incentive plan in January of this year. According to the incentive plan, an equal ratio of unlocking can be achieved by achieving 70% or more of the revenue or profit targets below the incentive plan. Among them, the 2024-26 revenue target is about +19%/16%/14% year over year, and the net profit target is about +15%/+13%/+11.5% year over year. We believe that the completion of the unlocking is high. The incentive is mainly to motivate core employees and technical backbone.
Profit forecasting and valuation
Considering that market expenses will increase under new market development in '24, we cut net profit of 15.0% to 389 million yuan in '24, and introduced net profit of 442 million yuan for '25. The current share price corresponds to 20.8/18.3 times 24/25 P/E. Maintaining an outperforming industry rating, we lowered our target price by 16.1% to 26 yuan, corresponding to 27.7/24.3 times the 24/25 P/E, which is about 32.6% higher than the current stock price.
risks
The recovery in single-store revenue fell short of expectations, and food safety risks.