Excellent Food Announces 2023 Annual Report and 2024/1 Quarterly Results Report. In 2023, the company achieved revenue of 7.26 billion yuan, a year-on-year increase of 9.6%, net profit to mother of 340 million yuan, an increase of 46.6% year-on-year, and net profit after deducting 40 billion yuan from mother, an increase of 5.45 billion yuan over the previous year. 1Q24 achieved revenue of 1.70 billion yuan, a year-on-year decrease of 7.0%, and net profit to mother of 170 million yuan, an increase of 20.0% year-on-year.
Key points to support ratings
The overall net increase in the company's stores decreased year on year in 2023, and the company's revenue growth rate fell 7.0% year on year in 1Q24, putting overall pressure on same-store sales. (1) By the end of 2023, the total number of the company's stores nationwide was 15,950, with a net increase of 874 stores for the whole year. Among them, the net increase in the number of stores in the first half of the year was 1,086, and the number of stores decreased by 212 in the second half of the year compared to the first half of the year. According to our estimates, the company's average sales of fresh goods in a single store were basically the same as compared to the same period last year. In 1Q24, the company's revenue growth rate decreased by 7.0% year on year, and we judge that same-store sales are under overall pressure. Impacted by changes in the consumer environment and new snack channels and online channels, the company took the initiative to slow down the pace of store opening, optimize the store structure, and improve the quality of life of franchisees, leading to an increase in the closing rate. Currently, the company is actively exploring new marketing models and membership systems to boost store sales. Despite pain in the short term, we are still optimistic about the company's development resilience as a leader in braised flavors. (2) In 2023, the company achieved revenue of 6.05 billion yuan for marinated food, including 5.77 billion yuan for fresh products, an increase of 6.1% over the previous year. Among fresh goods, poultry products accounted for 77.6%, which was basically the same as the previous year. Looking at volume and price, the overall sales volume and tonnage price growth rates of poultry products were -5.6% and 12.9% respectively, contributing more to the price increase than the volume increase. In 2023, the company's supply chain business continued to grow rapidly. In 2023, it achieved revenue of 970 million yuan, an increase of 33.8% year on year, accounting for 13.7% of revenue, up 2.4 pct year on year. (3) The company lost 120 million yuan in investment income in 2023. We judge that it was mainly affected by the Liao Ji project.
The company's cost side continues to be optimized, and profitability continues to improve. (1) The company's gross margin in 2023 was 24.8%, a year-on-year decrease of 0.8 pct. On a quarterly basis, 1Q23 to 4Q23 companies' gross margins were -6.0pct, -3.3pct, +2.2pct, and +4.4pct, respectively. The gross margin of the 1Q24 company was 30.0%, an increase of 5.7pct over the previous year. The obvious recovery in the company's gross margin in the first quarter was mainly due to continuous optimization on the cost side. According to data from Waterfowl Network and our estimates, the average price of 1H23, 2H23, and 1Q24 duck necks was 20.5, 13.2, and 10.9 yuan/kg, respectively. The purchase price of raw materials continued to decrease, driving the company's gross margin to increase. (2) In terms of cost rates, the company stopped large subsidies to dealers after the epidemic ended, and sales expenses gradually returned to normal levels. The company's expense ratio decreased by 3.8 pct year on year in 2023. Among them, the sales expenses rate and management expenses rate decreased by 2.3 pct and 1.4 pct, respectively. Excluding the impact of non-recurring profit and loss, the corporate income tax rate fell 5.4 pct to 34.0% year on year. The company's net interest rate to mother in 2023 was 4.7%, an increase of 1.2 pct year on year.
During the 1Q24 period, the company's expense ratio was basically the same, gross margin increased, and the company's net profit margin increased 2.2 pct year over year, and profitability continued to improve.
valuations
As a leader in recreational halogen products, although short-term performance is under pressure, the company continues to improve its internal marketing system and improve management efficiency, and we are still optimistic about the company's medium- to long-term development. Considering the impact of the current consumption environment and new snack sales channels on the traditional franchise store business format, we adjusted our previous profit forecast. We expect the company's revenue growth rates to be 7.7%, 11.5%, and 10.9%, respectively, 92.0%, 23.9%, and 22.5% respectively from 24 to 26, and EPS will be 1.07, 1.32, and 1.62 yuan/share, respectively. The corresponding PE for 24 to 26 will be 19.6X, 15.8X, and 12.9X, respectively, maintaining the “buy” rating.
The main risks faced by ratings
The macroeconomic recovery fell short of expectations. New snack mass sales channels have had an impact on the traditional store business format. Prices of raw materials fluctuate.