Incident: The company released its 2023 annual report and quarterly report. In 23, the company achieved revenue of 6.759 billion yuan/yoy +1.1%, net profit of 574 million yuan/yoy -10.3%, deducting non-net profit of 550 million yuan/yoy -12.3%. The company achieved revenue of 1.4 billion yuan/yoy -5.2% in 24Q1, net profit of 115 million yuan/yoy -17.0%, after deducting non-net profit of 110 million yuan/yoy -16.5%.

Demand is still under pressure, waiting for marginal improvements. 1) By product, the company's bread and pastries achieved revenue of 6.53 billion yuan/yoy +0.64%, mooncakes achieved revenue of 150 million yuan/yoy +6.92%, and rice dumplings achieved revenue of 0.2 billion yuan/yoy +27.82%; 2) By region, the company achieved revenue of 2.83 billion yuan/yoy -2.3% in Northeast China, and 2.3% in Northeast China, achieved revenue of 2.10 billion yuan/yoy +6.6%, North China achieved revenue of 1.52 billion yuan/yoy +0.0% in southwest China -3.0% South China achieved revenue of 460 million yuan/yoy -14.6%, Northwest China achieved revenue of 440 million yuan/yoy +1.3%, and Central China achieved revenue of 210 million yuan/yoy +2.0%; 3) The company achieved 24Q1 revenue YOY -5.2%, and there is still pressure on the demand side.

Expense rates remained stable for 23 years, and pressure on gross margins led to pressure on profitability. 1) Looking at gross margin, the company's 23-year gross profit margin was 22.8%, year-on-year -1.2pct, and gross margin was mainly due to rising raw material prices and unfully released production capacity and high upfront costs after some new construction projects were put into operation; 2) The company's 23-year sales/management/R&D/finance expenses ratio was 8.1%/2.0%/0.5%/0.4%, +0.0/+0.2pct year on year, and the cost ratio remained stable; 3) The company's net profit margin to mother in '23 was 8.5%, -1.1 pct year on year; 4) The company's net profit margin returned to mother in '23 was 8.5%, year-on-year -1.1 pct; 4) The company's 24Q1 net return to mother Interest rate 8.23% /YoY -1.17pct, of which 24Q1 gross margin was -0.83 pct year over year, and sales/management/R&D/finance expense ratio was -0.12/+0.21/+0.05/+0.26pct yoy.

According to the 24-year business plan, production capacity companies will continue to promote the layout of production bases across the country, and the construction of production bases such as Guangxi Peach and Changchun Peach will advance steadily; product-side companies will continue to enrich their product lines to meet the diverse needs of the market; and the sales side will further accelerate the construction of a strategic regional sales network. The company's 24-year budget target revenue yoy +5.00%, net profit yoy +5.04%, has a steady schedule, and is awaiting an inflection point in operation.

The company's operations are still under pressure. We lowered the company's revenue and gross margin forecast, adjusted the company's 2024-26 EPS forecast to 0.38/0.43/0.48 yuan (0.48/0.57 yuan in 24/25 before adjustment), and used a comparable company valuation method to give a 24-year 17 times valuation, corresponding to a target price of 6.46 yuan, and maintain a “buy” rating.

Risk warning

Demand recovery falls short of expectations, industry competition intensifies, production capacity climbing falls short of expectations, cost fluctuations, etc.