Incident: The company released the 2023 annual report and the 2024 quarterly report. Net profit/net profit without return to mother in 2023 was 70.56/7.49/ 646 million yuan, respectively, -5.1%/-6.6%/-9.0% year on year, and the 23Q4 revenue/net profit/net profit to mother was 16.41/1.97/162 million yuan, respectively, -21.8%/-28.4%/-38.5% YoY, 24Q1 revenue/net profit/ net profit to mother, respectively. 197 million yuan, -5.0%/-17.8%/-18.0%, respectively.

Demand is lackluster and competition intensifies, putting pressure on performance in the short term. The company's total revenue for 23Q4 & 24Q1, net profit to mother, net profit without return to mother, was -13%/-29%, respectively, or mainly due to the weakening of C-side consumption power since the second half of last year. Sales of traditional categories such as rice balls and dumplings were also lackluster around the Spring Festival this year. According to data from Yingma's offline retail monitoring network, the sales volume of frozen dumplings fell 19% year-on-year from July 20 to the beginning of January 10, 2024. Sales of frozen dumplings fell 19% year-on-year. The degree has increased, especially since 23Q4 in dumplings Product competition is fierce. The company's gross margins for 23Q4/24Q1 were 22.8%/26.6%, respectively, -4.0pct/-1.7pct, respectively, and gross sales margin was 13.0%/14.4%, -7.1pct/-1.3pct, respectively, and the net profit margins for 23Q4/24Q1 were 12.0%/10.2%, respectively, -1.1 pct/-1.6 pct, respectively, and net profit margins were 9.8%/8.8% year-on-year, respectively -2.7 pct/1.4pct, respectively.

Increase efforts to develop B-side channels and major customers, and continuously optimize the channel structure. On the BC side, retail and innovative market/catering market revenue in 2023 was 5.570 billion yuan/1,430 billion yuan, respectively; by channel, distribution/direct/direct e-commerce revenue was $55.18/12.54/229 billion yuan, respectively, -2.3%/-18.9%/+20.7%, respectively; by product, quick-frozen rice and noodle products/quick-frozen prepared food/refrigerated and short term insurance revenue was 5.829 billion yuan/1,076 billion yuan/0.95 billion yuan, respectively. 9.5%/+28.4%/-8.3%, with revenue from rice balls, dumplings and rice dumplings -15.7%, innovative noodle and rice products 2.140 billion yuan/year over year +3.9%; the number of dealers at the end of 23 was 4,245/year over year - 678, mainly due to channel quality optimization.

Expenses are accurately invested, and operational efficiency continues to improve. The sales expense rate/management expense rate/financial expense ratio in 2023 was 11.5%/2.3%/-0.2%, respectively, the same as -0.4 pct/-0.6 pct/, respectively. Mainly due to more accurate retail sales materials and personnel input, and a rebound in equity incentive costs, the 24Q1 sales expense rate/management fee rate/financial expense ratio were 12.2%/1.9%/-0.1%, respectively, compared to -0.4 pct/-0.2 pct/+0.1 pct, respectively.

Increase dividend rates to enhance shareholder returns. The company plans to pay 5 yuan for every 10 shares, corresponding to a dividend rate of 58.7%, which is a significant increase from 38.4% in 23 and the average of 34.7% for the past 5 years. If calculated at the closing price of April 25, the dividend will reach 4.0%.

Considering the phased pressure on C-side demand and industry competition, we lowered our 24-25 revenue and gross margin assumptions and predicted that the company's 24-26 EPS would be 0.88/1.00/1.11 yuan (1.08/1.21 yuan for 24-25 years), maintaining a “buy” rating based on a comparable company's target price of 14.96 yuan for 17 times PE in 24 years.

Risk warning

Demand falls short of expectations; new products and channel expansion fall short of expectations; food safety incidents; raw material price increases, etc.