Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 7.056 billion yuan, a year-on-year decrease of 5.1%, a year-on-year net profit of 749 million yuan, a year-on-year decrease of 6.6%, after deducting non-return net profit of 646 million yuan, a year-on-year decrease of 8.95%. In the fourth quarter of a year, 23Q4 achieved operating income of 1.64 billion yuan, a year-on-year decrease of 21.8%, net profit to mother of 197 million, a year-on-year decrease of 28.4%, and net profit after deducting non-return to mother of 162 million, a year-on-year decrease of 38.5%. Revenue and profit were slightly lower than expected. The dividend plan is 5 yuan for every 10 shares, and the cash dividend amount is about 400 million yuan, accounting for about 58.7% of net profit attributable to mother.
The company released its 2024 quarterly report. The 24Q1 company achieved operating income of 2,254 billion yuan, a year-on-year decrease of 5.0%, net profit of 230 million yuan, a year-on-year decrease of 17.8%, and net profit after deducting non-return to mother of 197 million, a year-on-year decrease of 18.0%. Revenue and profit were lower than expected.
Investment rating and valuation: Taking into account the weak recovery in demand, the profit forecast for 2024-25 was lowered, and 2026 was added. Net profit to the mother for 2024-26 was 760 million, 800 million, and 890 million (the previous 2024-25 was 800 million and 990 million), respectively, with year-on-year increases of 2%, 8%, and 8%, respectively. The current stock price corresponds to PE of 14x, 13x, and 12x, respectively, maintaining an increase rating.
In recent years, the company has made comprehensive efforts in catering and e-commerce channels, reduced the proportion of direct KA, optimized SKUs for inefficient products, actively promoted structural upgrades and category expansion of rice and noodles, and strived to achieve balanced channel and product development.
Traditional rice and noodles have dragged down revenue performance for 23 years. According to the 2023 annual report, by channel, the company's retail and innovation market and catering market achieved revenue of 5.63 billion yuan and 1.43 billion yuan respectively, with year-on-year changes of -9.6% and +17.9%, respectively. Among them, 1) retail market revenue declined year-on-year, mainly due to the fact that in 23, the company continued to reduce and control fees for direct commercial supermarket channels, and 2) the restaurant market revenue grew rapidly. On the one hand, the company actively expanded new customers, and products from old customers continued to penetrate. By category, revenue from quick-frozen rice and noodles in '23 was 5.83 billion, down 9.5% year on year. Revenue from rice dumplings, rice dumplings, and rice dumplings fell 15.7% year on year, mainly due to intense competition in the 23Q4 dumpling industry, and sales of stuffed products such as dumplings were constrained by long-term poor pig prices, which put pressure on the volume and price of dumpling products in both directions; however, revenue from innovative rice products increased 3.9% year on year. Revenue from quick-frozen prepared food was 1.08 billion yuan in '23, an increase of 28.4% over the previous year. Sausage, crispy meat, etc. are all expected to grow rapidly. In 2023, the number of the company's dealers decreased net by 678 to 4,245, mainly due to the company's optimization of the dealer structure.
According to the 2024 quarterly report, the 24Q1 company's revenue declined year-on-year, mainly due to the fact that the rice and noodle industry is still affected by a certain price war, but as rice and noodles enter the low sales season, the price war factors are expected to ease sequentially. Looking ahead to 2024, the company will continue to adopt the strategy of increasing the profitability of old products and increasing the revenue scale of new products and new channels, further increasing direct e-commerce and B-side development, and deepening the product penetration of leading catering companies such as Yum. It is expected that retail channel revenue will remain stable and the catering channel will continue to grow faster.
Profitability in '23 and 24Q1 is under pressure. According to the 2023 annual report, the company's gross margin was 25.8%, -2.2 pct year on year, mainly due to 1) the decline in revenue share of high-margin dumpling rice dumpling rice dumpling and dumpling revenue, and 2) revenue pressure dragged down the scale effect. In terms of cost rates, the company's sales, management, R&D and financial expense ratios in '23 were 11.5%, 2.3%, 0.5%, and -0.2%, respectively, compared with -0.4 pct, -0.6 pct, -0.2 pct, and -0.02pct, respectively. Among them, 1) the decline in sales expenses was mainly due to more accurate retail sales materials and personnel investment; 2) the reduction in management expenses was mainly due to the recovery of equity incentive expenses. In summary, the company's net interest rate to mother in '23 was 10.6%, -0.15pct year on year.
According to the 2024 quarterly report, the 24Q1 company's gross margin was 26.6%, -1.7 pct year on year. It is expected that the main reason is that the pressure on dumplings will drag down the product structure. In terms of cost ratio, 24Q1 company's sales, management, R&D and financial expenses rates were 12.2%, 1.9%, 0.3%, and -0.12%, respectively, -0.4 pct, -0.2 pct, +0.06 pct, and +0.06pct, respectively. In summary, 24Q1's net interest rate to mother was 10.2%, -1.6 pct year over year.
The catalyst for stock price performance: new product sales exceeded expectations, and restaurant channel expansion exceeded expectations
Core hypothetical risks: downstream demand falls short of expectations, rising raw material prices, food safety risks