The company released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, Petty Co., Ltd. achieved operating income of 14.1 billion yuan, and achieved net profit of 10.91 million yuan compared to the same period last year, and -108.7% year over year (the performance was slightly below the lower limit of the performance forecast, and the net profit range for the company's 23 year performance forecast was -10 million yuan to -5 million yuan). Among them, 23Q4 achieved operating income of 50 billion yuan, +31.2% year-on-year, and realized net profit of 18.069 million yuan, or +158.7% year-on-year. 24Q1 achieved operating income of 384 million yuan, +142.4% year-on-year, and realized net profit of 41.712 million yuan, or +209.6% year-on-year. Due to the good demand from overseas customers in 24Q1, the capacity utilization rate of the company's overseas factories climbed and accelerated, so the performance was higher than our previous expectations (we expect the company to achieve a net profit of 26 million yuan in 24Q1).

Overseas business revenue and profit recovered quarterly in 2023. Affected by overseas customer inventory removal, the company's overseas business revenue in 2023 was -27.1% year-on-year, or 1.06 billion yuan. Due to the decline in export orders and insufficient capacity utilization, the gross margin of overseas business was -4.2 pct year-on-year, or 17.9%.

On a quarterly basis, as the warehousing cycle for overseas customers gradually came to an end, the order pace gradually returned to normal, and the company's overseas business revenue and profit increased quarterly. With 23Q1-Q4, the company's comprehensive net interest rate increased from 14% to 24%. 24Q1 The company's overseas business resumed growth, and the capacity utilization rate of the New Zealand and Cambodia factories climbed down, leading to an increase in profitability. According to the company's announcement, in March '24, the company's 40,000 ton dry food plant in New Zealand officially entered the mass production stage, and the capacity utilization rate of the Cambodian factory climbed, gradually reversing losses. The 24Q1 company's comprehensive gross margin was 24.4%, +10.3pct year on year, +0.4pct month on month, net margin was 10.9%, +34.8pct year on year, and +8.0 pct month-on-month. Looking ahead, with the gradual development of overseas customers and the gradual rise in production capacity in New Zealand and Cambodia, the company's overseas business revenue will continue to grow steadily, and there is still room for improvement in profitability.

Focusing on independent brands such as “Jue Feast”, domestic revenue has maintained rapid growth. In 2023, the company's domestic business achieved revenue of 350 million yuan, +27% year on year. The revenue share increased to 24.8%, +8.9pct year on year, and gross margin of domestic business was 23.7%, +0.1 pct year on year. 23H1 launched the new product “Jueyan Dog Canned Snack”. One month after launch, “618” ranked 8th in the Tmall Dog Canned Food category. In July, it became the number one selling item on the Tmall Dog Snack List, successfully creating a new hot product after “Jueyan Dried Duck”. The company expects to launch dry food products in Q2, improve the product category layout, and gradually increase the proportion of staple food categories. The company will continue to increase sales expenses and improve the layout of the domestic marketing system to maintain rapid domestic business revenue growth. According to Jiuqian Consulting data, the cumulative sales volume of Taobao, JD, and Douyin in 24Q1 was +48% year-on-year. At the same time, it is also expected to raise the gross margin level of domestic business by raising prices, strengthening price control, and adjusting product structures.

Raise profit forecasts and maintain a “buy” rating. The company's production capacity of 40,000 tons of dry food in New Zealand will gradually increase in 24, and the production capacity utilization rate of the Cambodian factory is expected to rise. It is expected to achieve profits, driving the company's revenue and gross margin upward. At the same time, domestic business losses are expected to gradually narrow. Therefore, we raised our profit forecast for 24 and added a profit forecast for 26 years. The company is expected to achieve operating income of 18.3/2.52 billion yuan in 2024-2026, achieving net profit of 1.4/1.8/210 million yuan (the original 24-25 profit forecast was 1.3/180 million yuan) Yuan). The current stock price corresponds to PE of 26X/21X/18X, maintaining a “buy” rating.

Risk warning: risk of exchange rate fluctuations; risk of price fluctuations of raw materials; risk of new product promotion falling short of expectations.