Incident: On May 20, 2024, Yasui Foods held the 2023 Annual General Meeting of Shareholders. At the meeting, the company fully introduced the company's business situation, future strategy and development goals in 2023, which strengthened investor confidence. The summary feedback is as follows:

Focus on creating regional explosives, attract consumers by developing market-competitive products, and invest resources in explosives development, channel construction, internal management optimization, and business strategy formulation to ensure that products can meet market needs and stand out from the competition. In terms of cost, the advantages of relying on large-scale procurement volume and unobstructed procurement channels are obvious. Major raw material production areas are selected as factory site selection criteria to maintain the raw material advantage. Establish stable cooperative relationships with suppliers to ensure the stability of raw material supply, so as to better control costs. In the future, the company plans to fully cover the B-side and C-side markets and go deep into various online and offline fields. In terms of online channel construction, it mainly focuses on new e-commerce retail platforms, and actively promotes WeChat's home delivery business, using new media platforms such as Douyin to reach a wider range of consumers, and effectively drive traffic to traditional terminal stores such as restaurants. Develop more breakfast foods that meet new consumption scenarios to meet market demand and fill market gaps.

Promote digital strategies, use informatization to improve R&D and sales efficiency, and increase regional explosives development efforts. By establishing a distributed R&D structure, the connection between regional R&D teams and local markets is strengthened to better meet the needs of consumers in different regions. By product, 1) Fresh Lock products are positioned as the middle and high-end market. It is planned to launch two new products, Lock Fresh Pack 5.0, in 24 to seize the high ground in the industry and create a clean product label, which is expected to become the main source of profit in the future. 2) Due to the weak recovery of crayfish consumption after the end of the epidemic and inventory pressure caused by oversupply of raw materials, the company adopted a prudent strategy in early '24 to reduce orders from collaborating manufacturers, and external acquisitions to settle production based on sales. It is expected that crayfish performance will gradually improve in '24. 3) Fully enter the volcanic stone sausage market with the aim of creating a second growth curve. The product selection strategy focuses on products that are growing rapidly, have large market space, and are on the rise. From the perspective of the product life cycle, sausages are currently in a period of rapid development and are expected to achieve breakthroughs at new growth points.

Future growth strategy: In order to increase the growth rate of the main business, the company plans to focus on endogenous growth and opportunities for extrinsic mergers and acquisitions through new product development and channel optimization. Endogenous growth: Based on the existing business, the company strives to find new growth points while maintaining the steady growth of the existing business. Control capital expenditure according to market conditions, reserve a certain amount of free production capacity to meet demand for new products, avoid overcapacity due to excessive investment, and leave room for development of new products. Outreach mergers and acquisitions: Follow the three major principles: 1) work together around the main business and focus on the frozen food circuit; 2) complementary industries and seek complementarity in products, channels, management, and regions; 3) The icing on the cake. We hope that the merger and acquisition companies can achieve growth in terms of sales and profits and contribute to the company's subsequent growth. The company will strengthen management collaboration, improve the management level of the acquired enterprises through personnel dispatch, information technology construction, etc., and improve operational efficiency, so as to achieve business integration and maximum value after the merger and acquisition.

Profit forecast and investment suggestions: The company continues to advance the layout around the main business+secondary growth curve, enrich the product range, improve the production capacity layout, and save strength for subsequent growth. We expect the company to achieve operating income of 156.87/177.20/20.063 billion yuan in 24-26, an increase of 11.69%/12.96%/13.22% year-on-year; net profit to mother of 16.35/19.50/22.26 billion yuan, an increase of 10.65%/19.22%/14.15% year-on-year. PE was 18.07/15.16/13.28x, respectively, maintaining the “Highly Recommended” rating.

Risk warning: macroeconomic downside risk, industry demand falling short of expectations, rising costs exceeding expectations