The company's 24Q1 revenue was 4.83 billion/ +534.0%, mass snack sales revenue was 4.70 billion yuan, and net profit margin after excluding equity incentives reached 2.5% /month-on-month +0.7 pct. The mass sale of snacks is currently growing rapidly, and the industry share is rapidly concentrated at the top; the company team is of high quality, leading in multiple dimensions such as supply chain, warehousing, expansion, and brand, and the leading position is stable. It is expected that the share will continue to increase and profits will gradually be realized. Maintain a “Highly Recommended” rating.

Revenue from mass snack sales continues to explode, and single-store terminal sales are expected to increase year-on-year in 24Q1. The company's 24Q1 revenue was 4.83 billion/ +534.0% year-on-year, with net profit of 70 million/ +50.4%; of these, mass snack sales were 4.70 billion, and the year-on-year increase was expected to slow by about 10%. It is expected that mainly due to franchisees preparing goods in advance for the peak season, 24Q1 terminal sales are more reflected in the shipping side of 23Q4; and Q1 is the low season for retail sales, and the company's 24Q1 new store's first batch revenue contribution declined sequentially. Q1 terminal snack sales are good. It is expected that the company's 24Q1 terminal single store sales will all achieve significant year-on-month growth.

The profitability of mass-selling snacks increased significantly from month to month, and it is expected that it will continue to be optimized. After excluding equity incentive fees, the company's 24Q1 net profit of mass-selling snacks was 120 million, and the corresponding net interest rate was 2.5%. 23Q1-Q4's net interest rate after excluding equity incentives was -2.0%, -2.2%, 0.2%, and 1.8%, respectively. Profitability continues to improve markedly from month to month. It is expected that the company will continue to expand the scale of snack sales revenue, continue to dilute fixed investment+digestive upfront investment, and the trend of continuous improvement in the profitability of mass-selling snacks is clear.

23 There was a net increase of 4,4494 stores for the whole year, and it is expected that the rapid expansion of stores will continue in 2024. Q1 is not the peak season for retail stores. The company's Q1 store opening slowed slightly from month to month due to factors such as the Spring Festival holiday, and store openings are expected to accelerate in Q2 and Q3. The company added 4,633 new stores in 2023, closed 76, reduced 63, net increase of 4,444 stores, and the number of stores at the end of 23Q4 was 4,726. The company has leading advantages in East China and Central China, and continues to explore the national market; currently, there are still many empty markets in the industry, and it is expected that the company will maintain a rapid pace of store expansion in 2024.

The gross margin for mass-selling snacks has increased markedly, and the sales expense ratio continues to be optimized. The gross margin of the 24Q1 company was 9.8% /-5.7pct. Among them, the gross margin of the snack sales business 23H1/H2 was 7.87%/9.99%, respectively, which was a significant increase. The rate for the 24Q1 period was 7.3% /-1.8pct, including sales rate 4.0% /-0.6pct, finance rate 0.2% /-0.2pct, management rate 3.0% /-1.0pct, and R&D rate 0.02% /-0.0pct. It is expected that the company's various cost rates will be significantly optimized as the scale of the business grows and the refinement of the company's operations.

Investment advice. The mass snack industry is currently still in a period of rapid growth. The market share is concentrated at an accelerated pace. The company team is of high quality, leading in multiple dimensions such as supply chain, warehousing, expansion, and brand. The leading advantage is stable. It is expected that the share will continue to increase, and profits will gradually be realized. The company's 2024E/25E/26E net profit is estimated to be 2.0/43/ 61 billion yuan respectively, maintaining the “Highly Recommended” rating.

Risk warning: store expansion falls short of expectations, industry competition intensifies, food safety risks, etc.