Incidents. The company released its 2024 quarterly report: 24Q1 achieved total operating revenue of 853 million yuan, +11.3% year-on-year, and net profit to mother of 176 million yuan, +37.2% year-on-year.
Online channels have performed well, and the number of dealers continues to grow. By product: 24Q1 Chinese cuisine revenue +17.7%. We believe or benefit from food extraction. Hot pot seasoning revenue was +1.2%, which we think may be related to the adjustment of the Dahongpao system; steady growth in sausage and bacon seasoning, revenue +21.8% YoY; other main business revenue +11.5% YoY. Channel division: Online channels grew rapidly, 24Q1 revenue +101.2% year over year, accounting for +6.94 pct of revenue to 15.5% year over year; offline channel revenue +2.9% year over year. By region: 24Q1 West/South/North/East/Central regions revenue +23.3%/+11.1%/+8.2%/+6.9%/+1.6%, respectively. There was a net increase of 18 dealers in 24Q1 to 3183, with a net increase of 24/7/6 in the West/South/Central regions, respectively.
Cost reduction and structural optimization are driving up gross margins. 24Q1 gross margin was +3.44pct to 44.1% year-on-year. We think we may benefit from: 1) product structure optimization and an increase in the share of high-margin products, 2) reduction in raw material procurement costs, 3) channel structure optimization, and an increase in the share of high-margin e-commerce channels. Cash flow performance was good, with 24Q1 sales payback/net operating cash flow +13.0%/+57.1% year-on-year to 8.98/188 million yuan.
The profit performance was impressive, after deducting an increase in non-net interest rates. The 24Q1 sales expense ratio was +2.18pct year-on-year to 17.0%. We think it may be related to the increase in advertising expenses. Net profit margin for 24Q1 was +3.89pct to 20.6% year over year, mainly benefiting from: 1) increase in gross margin, 2) decline in management expenses ratio (-0.83 pct year over year), 3) increase in investment income (+171.4% year over year to $34 million); net interest rate after deducting non-return to mother +1.69pct to 17.2% year over year.
Profit forecasting and investment advice. We expect the company's 2024-2026 EPS to be 0.54, 0.64, and 0.74 yuan/share, respectively. Referring to comparable company valuations, we gave the company 25-30 times PE in 2024, with a corresponding reasonable value range of 13.62-16.34 yuan, maintaining a “superior to the market” rating.
Risk warning. Prices of raw materials fluctuated greatly, industry competition intensified, etc.