24Q1 revenue remains under pressure. The company's revenue in '23 was 7.261 billion yuan, +9.64% year-on-year, net profit to mother was 344 million yuan, +48.07% year-on-year, and net profit after deducting 401 million yuan to mother, +55.88% year-on-year. Net operating cash flow in '23 was $420 million, -65.18% YoY. It is proposed to distribute a cash dividend of 0.5 yuan (tax included) per share in '23. The 24Q1 company had revenue of 1,695 billion yuan, -7.04% year on year, net profit of 165 million yuan, +20.02% year on year, net profit of 156 million yuan after deducting net profit from mother, +15.66% year on year.

24Q1 profit margins have clearly recovered. The company's gross margin in '23 was 24.77%, -0.8 pct year on year; sales expense rate/ management expense ratio was 7.44%/6.96%/0.19%, respectively, -2.31pct/-1.39pct/ -0.11pct, respectively. The reduction in sales expense ratio was mainly due to a decrease in marketing expenses, and the reduction in management expenses ratio was mainly due to a reduction in share payments; the net profit margin was 4.74%, +1.23pct year on year. 24Q1's gross margin was 30.03%, +5.73pct; sales expense ratio/management expense ratio/financial expense ratios were 7.88%/6.87%/0.49%, respectively, +1.09pct/+0.1pct/+0.47pct, respectively, and the net profit margin to mother was 9.73%, +2.19pct year on year.

24Q1 Other Business Revenue +7.07% YoY. By product, the 23 revenue/growth rate/24Q1 growth rates for each product were 5.768 billion yuan/ +6.09%/-8.73% for fresh goods, 282 million yuan/ +32.75%/-16.44% for packaging, 83 million yuan/ +11.38%/-15.48% for franchisee management, and 974 million yuan/ +33.82%/+7.07%, respectively. By region, the 23 revenue/growth rate/24Q1 growth rates for each product were 832 million yuan/ -3.76%/+1.02% in Southwest China, 141 million yuan/ +106.52%/-53.7%, Central China 2,219 billion yuan/ +10.81%/-6.65%, South China 1,605 million yuan/ +12.06%/-10.19%, East China 1,293 million yuan/ +8.72%/-6.3%, North China 887 million yuan/ +19.04%/+0.38%, Singapore, Canada, Hong Kong & Macau 130 million yuan/ -13.22%/-26.02%.

Focus on increasing single-store revenue for 24 years. In '23, the company transformed from a horse-racing location-style store strategy to deep cultivation through scientific and sophisticated channels, with a net increase of 874 stores throughout the year. In '24, the company proposed an annual management policy of “seizing the window period and seeking breakthroughs”, which will promote the structural adjustment of stores and franchisees, optimize the single-store model, improve single-store revenue, and guarantee the quality of life and profit levels of franchisees.

Profit forecasting and valuation. We expect the company's net profit from 24-26 to be 707 million yuan, 831 million yuan, and 984 million yuan respectively. As an industry leader, the company is expected to gradually accelerate development and give a certain valuation premium. Based on 25-30 times PE and 15-20 times EV/EBITDA in 24 years, calculate a reasonable value range of 30.38-34.22 yuan per share, giving a “superior to the market” rating.

Risk warning. The impact of price fluctuations in upstream raw materials; increased competition in the industry, etc.