Due to the impact of the external environment, we are waiting for the bottom to recover. The “increase in holdings” rating company released its 2023 report. It achieved revenue of 1.92 billion yuan for the whole year, down 1.7% year on year, and realized net profit of 0.7 billion yuan, up 129.0% year on year. Of these, 2023Q4 achieved revenue of 340 million yuan, up 1.2% year on year, and net profit loss of 0.3 billion yuan, a year-on-year reduction of 43.56%. The short-term operation of the industry is under pressure. We lowered 2024-2025 and added a profit forecast for 2026. We expect to achieve net profit of 1.0 (-0.4), 1.3 (-0.4), and 170 million yuan, respectively, up 44.7%, 22.6%, and 37.5% year-on-year. The current stock price corresponds to PE 45.7, 37.3, and 27.1 times. As the leading brand of halogen products, the company is expected to increase its revenue industry concentration in the future and maintain the “increase” rating.

Same store operations are under pressure to maintain steady store opening

The company's 2023Q4 revenue growth ratio was 1.2%, and the growth rate was low, mainly due to the macroeconomic environment affecting offline store operations of halogen products. By category, the company achieved revenue of 1.41 billion yuan for fresh products in 2023, down 0.9% year on year. The halogen products business was still under pressure. By the end of 2023, the company had 4,497 stores, a net increase of 572; rice products achieved revenue of 360 million yuan in 2023, an increase of 5.3% year on year, benefiting from channel expansion. Looking ahead to 2024, the company plans to open 2,000 new stores to further cultivate old markets such as Jiangxi and Guangdong, and new markets around new bases in Shaanxi and Chongqing.

The gross margin clearly recovered, and the net profit side significantly reduced losses

The company's gross margin for 2023Q4 was 30.7%, an increase of 6.4 pct over the previous year. The main reason for the significant increase in gross margin was the company deepened store construction, the revenue from old halogen products stores recovered, the downward trend in business revenue narrowed, compounded by the decline in raw material prices and a lower base, and a significant improvement in gross margin. The sales expense ratio decreased by 1.4 pct year-on-year, mainly due to a decrease in revenue promotions, rental expenses, etc. The management fee rate decreased by 0.5 pct year on year, and the performance was relatively stable.

The company reduced losses by 43.56% in 2023Q4, and the net profit margin was -8.9%, up 7.1 pcts year over year, showing a recovery trend. In 2024, the company plans to achieve revenue of 2.35 billion yuan and net profit of 140 million yuan. By making efforts in various areas such as store formats, product innovation, service capabilities, organizational structure, digital transformation, and brand promotion, the company strives to achieve both revenue and profit growth in 2024.

Risk warning: Food safety risk, raw material price increase risk, external environment affecting same-store recovery risk.