Key points of investment
Event: The company released its annual report and first quarter results. In 2023, the company achieved operating income of 14.045 billion yuan (YoY +15.29%) and net profit to mother of 1,478 billion yuan (+34.24% YoY). In 2024Q1, the company achieved operating income of 3,755 billion yuan (YoY +17.67%) and net profit to mother of 438 million yuan (+21.24% YoY). In addition, the company plans to pay a dividend of 17.75 yuan for every 10 shares at the end of the year, for a total dividend of 519 million yuan, with a dividend ratio of 53.17% for the whole year.
The main business was operating steadily in 2023, and the 2024Q1 hot pot ingredients performed well. In 2023, the company's revenue for hot pot ingredients was 7.036 billion yuan (+11.17% year over year), respectively; noodle and rice products were 2,545 billion yuan (+5.43% year over year), mainly due to the impact of the supermarket channel market environment; revenue of dish products was 3,927 billion yuan (+29.86% year over year), mainly due to the incremental contribution of Xinliu Wu and Chef Yasui products. In 2024Q1, revenue from hot pot ingredients was 2,058 billion yuan (+30.01% year over year), with meat products and surimi products growing at 27.73% and 31.48% respectively, mainly due to Marunoson's incremental contribution and continued growth in fresh food. Revenue from noodle and rice products was 638 million yuan (+4.42% year over year) and 955 million yuan (+12.35% year over year), respectively.
Costs have declined, scale effects have been shown, and profitability has risen steadily. 1) On the profit side, gross margin/net margins for 2023 and 2024Q1 were 23.21% (YoY +1.25pct), 26.55% (YoY +1.84pct)/10.69% (YoY +1.65pct), and 11.75% (YoY +0.13pct), mainly due to lower raw material costs and scale effects. 2) On the cost side, the cost rates for the 2023 and 2024Q1 periods were 9.36% (-0.77pct) and 10.67% (YoY +0.55pct), respectively. The sales rate had a significant impact. The 2023 sales rate decreased by 0.58pct to 6.59%, mainly due to the company's scale effect and the reduction in promoters and advertising investment. 2024Q1 was affected by equity incentive costs, and the management rate increased 0.30pct to 3.12% year over year. In addition, Xinliuwu's performance of not fulfilling its promises in 2023 resulted in a goodwill impairment of 36 million yuan.
Steady progress throughout the year, and the development plan is clear. The growth rate of the main business reached 20% + in 2024Q1, and the net interest rate continued to rise. In 2024, the company is making steady progress and has a clear development plan. The specific strategy is 1) Focus on promoting the Locked Fresh Pack series, Volcanic Rock Sausage, and Grilled Chicken series throughout the country. Among them, Lock Fresh Pack will achieve uninterrupted promotion throughout the year, and strive to achieve double-digit growth. 2) In line with current market trends, increase the launch of new national and strategic products and regional products, and delegate decision-making power for some products to the local authorities. 3) Continue to promote sausage and set up a grilled chicken market, and combine production capacity sales in Shandong and Honghu Yasui this year to lay the foundation for product volume.
Investment advice: The company continues its excellent performance, and the advantages of the quick-frozen leader are prominent, but considering that the restaurant is still in a weak recovery stage, the company's 2024/2025 profit forecast is adjusted appropriately, and the 2026 profit forecast is expected to be 16.97/20.26/22.12 billion yuan respectively, with year-on-year growth rates of 14.83%/19.39%/9.16%, respectively. The corresponding EPS is 5.79/6.91/7.54, corresponding PE is 16.59/13.90/12.73 times. Maintain a “buy” rating.
Risk warning: New product promotion falls short of expectations, channel development falls short of expectations, food safety risks, raw material price fluctuations.