The amount and profit of kitchen food increased, and 2024Q1's net profit to mother increased by +3.30% year-on-year. In 2023, the company achieved revenue of 251,524 billion yuan (-2.32% YoY), net profit of 2,848 billion yuan (YoY -5.43%), and net profit without return to mother of 1,321 billion yuan (YoY -58.50%). The main reason for the decline in revenue was that the impact of falling product prices exceeded the revenue contribution brought about by sales growth; the decline in profit was mainly due to poor demand in downstream markets and a decrease in kitchen food profits during the reporting period. 2024Q1 gradually recovered with the domestic economy. Although the prices of major products declined due to market conditions, the company's sales of kitchen food, feed ingredients, and fat technology products all increased relatively well compared to the same period last year. Among them, kitchen food achieved a double increase in sales and profit. Specifically, in 2024Q1, the company achieved revenue of $57.274 billion (-6.17% YoY), net profit to mother of 882 million yuan (+3.30% YoY), and net profit of 244 million yuan (YoY +1.34%).

Kitchen food business: Profitability of retail products has improved, and channel products in the catering and food industry are under pressure. In 2023, the total sales volume of the company's kitchen food business was 23.22 million tons, +8% year-on-year, mainly due to the gradual recovery of the catering and food industry channel product sales, which increased significantly with the gradual recovery of the market; revenue of 147.6 billion yuan, -6% compared with the gradual recovery of the market, mainly due to falling prices of major products exceeding the revenue contribution of the increase in sales volume; the gross profit margin was 6.41%, -0.27pct year on year, mainly because the flour business was affected by high-priced inventory and increased market competition. The decline in the 2024Q1 market has led to a recovery in product prices, but improvements in the downstream consumer market have driven sales of retail products and catering and food industry channel products to maintain growth, and the revenue and profit of the kitchen food business has doubled. Specifically, the gross margin of retail products benefited from falling raw material costs and achieved a sharp increase in revenue and profit; flour products in catering and food industry channel products were pressured by poor market demand, fierce competition, and low by-product prices, and overall performance declined.

Feed raw materials and oil technology business: Downstream demand is weak, 24Q1 performance is under pressure. In 2023, the total sales volume of the company's feed ingredients and oil technology business was 26.87 million tons, +14% year over year; operating income was 102.2 billion yuan, +4% year over year, mainly benefiting from sales growth and Q3 meal price increases; gross profit margin was 2.19%, -1.62 pct year on year, mainly due to low downstream farming profits suppressing demand. 2024Q1 Feed raw materials and oil technology business performance declined. The main reason was poor profits in the downstream aquaculture industry of the feed ingredients business, poor feed demand, and prices of feed raw materials products such as soybean meal dropped significantly compared to the same period last year due to market competition combined with weak demand, which led to a decline in feed raw material performance.

Risk warning: The risk of abnormal weather and epidemics affecting phased fluctuations in the feed industry.

Investment advice: As a leading kitchen food company, diversified development is worth looking forward to, maintaining a “buy” rating. Considering that the improving economy and the recovery in farming are expected to improve demand, we raised the company's profit forecast for 2024-2025 to 35.42/38.28 billion yuan (originally estimated at 2,933/38.14 billion yuan) to forecast net profit to mother of 4,040 billion yuan in 2026, corresponding to PE of 48/45/42X.