Incidents:

The company announced 2023 revenue/net profit to mother of 140.45/1,478 billion yuan, a year-on-year increase of 15.29%/34.24%; corresponding to 2023Q4 revenue/net profit to mother of 37.74/356 million yuan, a year-on-year decrease of 6.27%/13.41%. 2024Q1 revenue/net profit to mother was 37.55/ 438 million yuan, up 17.67%/21.24% year over year. The company's performance was in line with expectations.

Revenue side: The main business is growing strongly

The company's 2023Q4+2024Q1 revenue increased 4.31% year-on-year, mainly due to pressure in 2023Q4: (1) slow food recovery and poor new product launch results, further weakening terminal demand in warm winter; (2) as the industry's growth rate slows, competition for frozen pasta has intensified slightly, and the company is currently less willing to participate in competition.

2024Q1's revenue increased 17.67% year on year. The main business growth was mainly due to: (1) catering exceeded expectations during the Spring Festival; (2) the company released price policies in March to increase the enthusiasm of dealers to pick up goods; (3) benefiting from the company's shipping pace adjustments. Mr. Frozen remained the same year on year, mainly due to the fact that some large items were out of stock in February and March.

Profit side: gross margin drives profit growth

The company's 2023Q4+2024Q1 net profit increased 2.58% year-on-year. Profitability improved even when impairment losses were calculated, mainly benefiting from the increase in gross margin. The year-on-year increase in the company's gross margin in 2023Q4+2024Q1 is mainly due to: (1) cost dividends; (2) structural optimization: sectors with higher gross margins are growing faster.

Profit Forecasts, Valuations, and Ratings

Based on the effects of slowing industry growth and increased competition, we expect the company's revenue in 2024-2026 to be RMB 158.31/175.93/19.487 billion yuan, up 12.71%/11.13%/10.77%; net profit to mother will be RMB 16.46/18.70/2.043 billion, respectively, up 11.38%/13.59%/9.23% year on year, and the 3-year CAGR will be 11.39%. Referring to comparable company valuations, we gave the company 20.43 times PE in 2024, with a target price of 114.70 yuan, maintaining a “buy” rating.

Risk warning: New product expansion falls short of expectations, industry competition intensifies, food safety issues