Incident: The company published its annual report for '23 and its quarterly report for '24. In 2023, the company achieved revenue of 8.05 billion yuan, a year-on-year decrease of 14.8%, and achieved net profit of 180 million yuan to mother, a year-on-year decrease of 46.3%. 24Q1 achieved revenue of 250 million yuan, a year-on-year increase of 2.8%, and realized net profit of 62 million yuan, a year-on-year decrease of 58%.
Comment:
The 23-year business was under pressure, and price cuts were actively dealt with. In '23, the company's direct retail/franchise/e-commerce and group purchases achieved revenue of 18.9/24.0/31.7/4.9 billion yuan respectively, compared to +22%/-7%/-33%/-1%. The overall decline in e-commerce platforms was mainly affected by changes in online traffic. The overall store business was relatively stable. The company had 67 net stores opened in '23, and the total number of company stores at the end of '23 was 3,293, including 2037 franchised stores (191 net closed in '23) and 1,256 direct-run stores (net opening 258 in '23). Competition from outside the industry was under pressure, and direct business was actively adjusted to achieve positive growth. In order to cope with changes in the external consumption environment, the company actively adjusted and carried out the largest price adjustment since its establishment in November 23, with an average price reduction of 22% for more than 300 products. Looking at 24Q1, direct retail/ franchising/ e-commerce/group buying were +10.2%/-16.0%/+6.7%/+57.3%, respectively. All businesses other than the franchise business achieved positive growth. We expect the franchise business to be mainly affected by price cuts. The decline in the business was lower than the price reduction, and active adjustment of price reductions led to volume increases.
The cost ratio is relatively stable, and 24Q1 gross margin fluctuated under the price reduction strategy. The company's gross margin for 23 was 27.7%, +0.2pct year on year, sales expenses ratio was 19.5%, +0.9pct year on year, management expense ratio was 5.6%, +0.5pct year on year, and achieved net interest rate of 2.2% to mother in '23, -1.3 pct year on year, mainly due to increased cost ratio. The 24Q1 company achieved a gross profit margin of 26.4%, a year-on-year ratio of -2.7, a sales expense ratio of 17.4%/4.9%, and a year-on-year ratio of +0.4 pct/-0.2 pct. The overall 24Q1 expense ratio remained relatively stable. The net profit margin for 24Q1 was 2.5%, down 3.7 pct year on year, mainly due to price cuts affecting gross profit margin.
Active strategic transformation, the effects of the adjustments can be expected. The company actively responds to changes in the external environment, continuously improves supply chain/organizational efficiency at the back end, and provides consumers with quality-price advantages. Looking ahead, the company's store business is more of a misplaced competition with the mass sale of snacks. By implementing the “tasty and not expensive” price strategy and the value proposition of “natural and healthy new snacks,” we are focusing on the results of subsequent store adjustments. Online business companies actively explore emerging e-commerce platforms and focus on the company's success in entering emerging e-commerce platforms such as Douyin. The company's gift box has extensive experience in IP cooperation and scenario segmentation. Sales of New Year's gift boxes increased 25% year-on-year in '24, and the group buying business also achieved rapid growth in 24Q1, and the trend is expected to continue.
Profit forecast and investment rating: We expect the company's diluted earnings per share in 2024-2026 to be 0.62 yuan, 0.78 yuan, and 0.90 yuan, respectively. The company has a deep understanding of the current consumer environment, and is actively making internal adjustments. The supply chain continues to reduce costs and increase efficiency, provides front-end products with better quality and price ratio advantages, is optimistic about the results of the company's adjustments, and maintains a “buy” rating for the company.
Risk factors: Increased competition in store business, falling short of expectations with online access to emerging e-commerce platforms, food safety issues.